The First MicroFinanceBank Ltd

Enabling Individuals

The First MicroFinanceBank Ltd.

16th & 17th Floors, Habib Bank Tower, Blue Area,

Islamabad, Pakistan.

UAN: 051 111 362 362 Toll Free: 0800 - FIRST (34778) Fax: +92 51 282 1817 Email: info@mfb.com.pk

www.fmfb.pk
 ANNUAL REPORT 2017

The First MicroFinanceBank Ltd

Enabling Individuals
 ANNUAL REPORT 2017

OUTREACH SUSTAINABILITY IMPACT TRANSPARENCY

The First MicroFinanceBank Ltd

Enabling Individuals
 TABLE OF CONTENTS

Vision, Mission,
Core Values 1
Page 05

2 2017
Highlights
Page 09
Our Customer’s
Successes 3
Page 13
Chairman’s
4 Message
Page 19
President’s
Review 5
Page 23
Corporate
6 Information
Page 29
Board of
Directors 7
Page 33

8 Management
Page 37
Products
and Services 9
Page 41
15 Years of
10 Microfinance
2017: Page 74
The Year in
Focus
11
Page 51
Financial
12 Review
Page 59
FMFB’s
Social Goals 13
Page 63
Directors’
14 Report
Auditor’s Page 69
Report to
the Members
15
Page 75
Financial
16 Statements
Page 79
FMFB
Presence 17
Page 113
04
 VISION
MISSION 1
CORE VALUES

05
 VISION

Enable people to improve their

quality of life with inclusive and
innovative financial solutions

MISSION

Expand outreach in a
sustainable and
responsible manner
by creating financial
solutions for our
customers

06
CORE EXCELLENCE

VALUES
At the core of everything
the bank does,
excellence is the one
value that shines
through everything. FMFB
needs to be the best in
everything we do in a
highly competitive
market.

PROGRESSIVENESS
We believe in improving society through
enlightening working practice,
innovative ideas and the spirit of
enterprise.

INTEGRITY
The success of our business depends on trust. Our
customers and the nation as a whole expect us to
maintain high levels of professional standards and
moral principles.

CUSTOMER FOCUS
We constantly listen to our customers. It helps us
fully understand their needs and enables us to
offer products and services that are right for them.

MERITOCRACY
We believe in giving opportunities and
advantages to our employees on the basis
of their ability and achievement alone.

07
08
 2017
HIGHLIGHTS
2

09
 Cumulative
Loan
Disbursement
Billion PKR

67.7 Cumulative
Number of Loans
SR Disbursed

Cumulative 2,245,728
Loan
Disbursement
to Women Cumulative No.
Billion PKR of Loans
18.5 Disbursed
to Women

717,656
Cumulative Loan
Disbursement
to Rural Areas RS.
Billion PKR
Cumulative No.
44.2 of Loans
Disbursed
to Rural Areas

Cumulative Loan
1,465,819
Disbursement RS.
to Micro Enterprises
Billion PKR
Cumulative No.
21.3 of Loans
Disbursed to
Micro Enterprises

684,972
Ratio of
Female Borrowers

36%
Ratio of
Rural Borrowers

65%

10
 Active
Borrowers

304,563
Number of
Depositors

718,107
Deposit Base
Billion PKR

20.9
Equity
Billion PKR

4.5
Total Assets
Billion PKR
RS
RS 25.9
Net Profit /
Profit before tax
Million PKR

1,007
Credit Rating

JCR-VIS A+/A-1
Year 2017

Network

186
(134 branches,
11 PB, 41 SO)

50+ ATMs

Staff

2068
Outstanding
Loan Portfolio
Billion PKR
RS.
14.6

11
12
 OUR
CUSTOMER’S 3
SUCCESSES

13
 Aisha Nusrat
Aisha Nusrat, a 40 year old hails from village has shifted from group to individual finance. Another
Shorgore, Chitral. She is a hardworking and an achievement was the purchase of her own house
exceptionally committed entrepreneur who runs a with an attached small shop in which she teaches
sewing centre and owns ladies shop.The monthly other women to sew and also to sell ladies products.
turnover of her business is PKR 80,000 and her
business provides employment to four women. Her zeal to work has rewarded her to be the
president of the local Village Organization where she
Aisha was born in a poor family and was given in takes up new projects and successfully completes
marriage at the age of 12. Her initial married life was them.
miserable due to unemployment of her husband
and continous birth of four children in seven years. Today, Aisha is an independent business owner who
During her struggle to survive, she approached travels, shops, trains and even innovates on her own.
several people in her community till she finally met She still helps women of her village to learn
her mentor who taught her embriodery skill and also vocational skills at sewing centre and aims to further
to sew cloths. improve life of her children.

Building on her new vocational skills, she opted for She is a trust worthy client and regular customer of
her first loan with FMFB of PKR 20,000 in 2004 and FMFB.
started selling milk as business which did not run well.
After spending a year in the local Village
Organization, she was inspired to opt for another
loan with FMFB to purchase a knitting machine.
Since then, she has successfully flourished her
sewing centre, completed six cycles of her loan and

14
Ajaib Shah
Aijab Shah, a 48-year old dedicated entrepreneur, Though not married, Aijab has been supporting
belongs to a small village, namely, Dain Po his sister’s family and currently has fourteen
Chatorkhand in Tehsil Ishkomen, Ghizer (Gilgit). He dependents. At times, he has been the only
owns a small general store, which generates a source of economic livelihood for the family. He
monthly turnover of PKR 100,000. Aijab is blind, but has educated twelve nieces and nephews and
his physical disability has never hampered his has married off three nieces. One of his nephews
business acumen, and he has always strived to has joined the Army, while others support him in
grow his business. his business.

Aijab had a difficult childhood; his father passed Aijab is known for his business skills in the area
away when he was still small and his mother and is regarded as a mentor. Many members of
remarried. He spent his early years in a relative’s his community have learnt business skills from him
house along with his sister. He started working from as well as how to access a bank. He regularly
a young age and sought his first loan from the participates in community gatherings and kindles
FMFB nine years ago. Thereafter, there was no positive energy amongst the people.
looking back. Despite of adversities of floods in the
recent past, which affected not only his business
and it clientele but also his sister’s property. He was
able to overcome his financial problems by
diversifying into potato farming.

15
 Naseem Taj
Naseem, a 45-year old determined man from New Naseem managed to successfully turnaround his
Karachi manages a stitching training center life with his strong will and resolve. Despite of his
located in Khuda ki Basti, Surjani Town, having a personal challenges, being the sole bread earner
monthly turnover of PKR 70,000. Naseem started of his family, he educated his sister up to
his own business after working in a tailor shop for graduation from Karachi University. He was able to
22 years. make improvements in his house to have proper
sanitation facilities. Belonging to a religious
In 2011, Naseem decided to set up his own minority community in Karachi, Naseem was able
business. However, he faced strong resistance to to provide opportunities to the girls from the same
his idea since he was going to leave a stable job community, who were previously unable to access
and risk his meager saving. No one was willing to any such training. A vision for a better future is
lend him any money. Despite of this, Naseem was what has motivated Naseem, and he is lighting
determined to follow his dreams and bought a the same torch for others.
sewing machine; and started giving sewing
lessons to females in his area from one room in his
house. In a very short time, he saw the demand for
his services and he approached FMFB for his first
loan of PKR 30,000. Thereafter, over the past 7
years, he has expanded his training center to 35
sewing machines and has trained more than
4,000 students. Presently, 80 students are enrolled
in the training center. Most of his students are now
providing tailoring services or working in small
boutiques. Naseem is planning to open up two
more training institutions in different areas.

16
Ali Hassan
Ali Hassan, a 33-year old man, hails from Thugmo, enhance the quality of his works and improve his
a small village near Shigar in Baltistan. He owns a productivity, thus resulting in higher revenues.
carpentry business, which has expanded from a Today, he is accessing a loan of PKR 150,000 and
small shop started in 2012. His monthly turnover is his asset value exceeds PKR 500,000. Despite of
PKR 80,000; and the business provides challenges like power shortages, shortage of
employment to three permanent and seven skillful labor, price hikes in the cost of raw material,
seasonal staff. expensive machinery and spare parts, Ali has
remained steadfast on his business plans. In the
Ali belongs to a poor family. His father was an future, he intends to further expand his business
expert carpenter and used this skill to earn his using latest state-of-art tools and machines and
livelihood. However, his earnings were limited and training his community members in the trait to
Ali had to drop out of school in class 7 to help his work with him.
father. While continuing to study privately till class
9, Ali learnt the carpentry expertise from his father. Ali’s perseverance and business acumen did not
In 2006, when his father was unable to continue only enable him in expanding his business, but he
working, Ali started to manage the business. With was also successful in educating his four children
some meager savings, he set up a small shop, and two siblings, marrying his two sisters and a
namely “Muntazir Carpenter Shop”. However, the brother, and supporting his brother start a furniture
major breakthrough for his business happened shop. He was also able to build his own house.
when the renovation of Shigar Fort (Serena Hotel) Additionally, he has been instrumental in imparting
started. Identifying the major business opportunity, his skills within his community members.
Ali approached FMFB for a loan to buy machines
in 2012. His first loan was PKR 25,000, which helped
him to acquire fixed assets. Thereafter, he
borrowed again to buy more tools and machines.
With carpentry machines, he was able to

17
18
CHAIRMAN’S
MESSAGE 4

19
20
Chairman’s Message

I am delighted to report that FMFB made communities we serve. While being at

admirable progress on the key drivers of the forefront of innovative technology,
development and growth, extended its we will continue to enable the
footprint and outreach, enhanced communities we serve in achieving their
operating efficiencies and quality of aspirations.
assets. In 2017, the Bank increased its
loans by 74% and grew its deposits by I take this opportunity to convey my
71% over the previous year; FMFB sincere appreciation to our customers
disbursed Rs 16.5 billion to more than across the country, for their trust and
312,000 customers, of whom 36% are their business. I am also grateful to the
women, and now serves more than 1 State Bank of Pakistan, the Securities and
million customer relationships. While Exchange Commission of Pakistan and
enhancing financial inclusion and other regulatory bodies for their
improving the quality of people’s lives, continued encouragement, guidance
we also achieved record financial results, and support. The achievements of 2017,
delivering more than Rs 1 billion in profit would not have been possible without
before tax. the employees of this fine institution. Their
enthusiasm, untiring efforts and
In 2017, FMFB undertook a paradigm shift commitment has inspired us and will
in its approach to business and is now Insha’Allah steer FMFB to ever greater
poised to be a major player in an heights in the years ahead.
increasingly digital world. The new
channels and tools being developed
and introduced will result in a vastly
improved customer experience, while
enabling us to provide access to
financial services to many more of
today’s unbanked population. FMFB will
continue to explore opportunities under
Rayomond Kotwal
a well-defined strategy, delivering
Chairman
customized financial solutions that add
value, convenience and ease of use to
our clients.

FMFB assigns high priority to hiring,

developing and retaining the right
human resources, and is fully committed
to a culture of good governance and
compliance, strong risk management
and controls, and integrity. We seek to
embed our core values through all levels
of the organization so that FMFB's
reputation as a socially responsible
microfinance bank is cemented in the

21
22
PRESIDENT’S
REVIEW 5

23
24
President’s Review

2017 was a notable year for The First Loan, and was able to disburse PKR 295
MicroFinanceBank (FMFB). We celebrated million supporting more than 1,200
our 15th Anniversary with great customers. The range of our liability
enthusiasm; and we also reoriented our products was further expanded with the
strategy in line with the changing launch of the Umeed Bunyadi Bachat
environment. In pursuit of improving Account, which encourages young savers
financial inclusion in Pakistan, we have set (up to 18 years) to learn to save as well as
out a growth path that focuses on offering to manage their money; and the First
digital financial services along with our Current Plus Account, offering value
conventional products, and 24/7 banking added features to our customers.
facilities to all our customers, while
maintaining a healthy asset quality and a During the year under review, FMFB’s
strong balance sheet. footprint increased to 186 business
locations, with focused expansion in
FMFB achieved outstanding performance Khyber Pakhtunkhaw, Azad Kashmir and
in 2017. Our profits and balance sheet Balochistan. While we grew our brick and
footing continued to grow steadily and mortar presence across every province in
FMFB recorded a profit after tax of PKR 686 the country, 2017 was the year of
million, an increase of 117% from 2016. Our transformation for FMFB – where it
asset base grew by 54% mainly on the ventured into developing and offering
back of a healthy increase in loan digital access channels. During the year,
customer outreach – marking a 74% we successfully inaugurated our Digital
growth in outstanding loans from 2016, Financial Services department within the
closing the year at more than PKR 14 Bank, a step that proved instrumental in
billion. The deposit base increased by 71% developing and launching 10 digital
in 2017 to close at PKR 21 billion, along with access channels i.e. Mobile Banking App,
the overall deposit mix improvement with Debit Card, ATMs, SMS Banking, Toll Free
current account volume grew by 74% as Contact Center, USSD and IVR Banking, to
compared to the previous year. name a few. Our development was done
in record time by virtue of having an
A growth of 87% was witnessed in our in-house digital development team.
Agriculture and Livestock portfolios, where
FMFB continued to support As we strengthened our presence across
smallholderfarmers - the mainstay segment the country, we also focused on refining
of Pakistan’s economy. Roshanzar (upper our service quality. FMFB set up its
end of micro enterprise) clients increased Contact Center and implemented a
by 170% over the previous year, with Complaint Management System. Our
growth both in the agriculture and customer complaint management
enterprise sub-segments. FMFB launched process was significantly improved and
its housing product in mid-2017 - First Home actively monitors and engages with

25
 customers for complaint resolution on a With convenience came the responsibility
timely basis. to maintain the highest standards of data
confidentiality and cyber security, these
Our growth is the strongest evidence of the remain integral pillars of FMFB’s digital
dedication of the FMFB Family. In 2017, our strategy. Systems, firewalls and access
human resource philosophy was realigned security were enhanced to provide an
to provide a complete framework for adequate digital fortification for the most
applying people management practices to critical asset of the Bank, Client
maximize employee engagement and Information. These enhancements will
performance outcomes. We aim to be the ensure customer trust and confidence for
“Employer of Choice”, creating a unique FMFB’s array of products, channels and
workplace and providing unlimited services;
opportunities of career growth to our
employees. During this year, we With a thrust to achieve operational
strengthened our performance-based excellence and an assertive growth plan,
reward system, revised employee grades FMFB has been concious and is
and organizational structure, and rolled addressing the inherent risks in this
out various compensation and benefit segment. In 2017, we reformulated our risk
programs that made us stand out amongst management framework and appetite in
our competition.FMFB’s Learning and order to balance our portfolio mix. We
Development Center serves as an emblem enhanced our operational and liquidity
of excellence. Employees were imparted risk frameworks, implemented a risk
trainings, vocational as well as soft skills, dashboard, improved banking operation
that prepared them to effectively serve controls, and strengthened regulatory
today’s highly informed and demanding compliance including AML policies and
client base. A total of 33,818training hours standards.
were invested to develop the next
generation of highly skilled workforce. In 2017, FMFB completed 15 years of
operations. However, our rich history
FMFB made considerable investment dates back to 1982 when the Aga Khan
towards improving the overall IT Rural Support Programme set up its Credit
infrastructure with respect to core banking, and Savings Program to pioneer
networks, data security, upgrading legacy microfinance in Pakistan. Over its 20 years
systems, hardware as well as software, of operations, it laid down the foundations
provision of secondary links, up-gradation of a promising financial sector in Pakistan.
of data links and linked services. In order to The dream was carried forward by FMFB,
be able offer digital access channels, it and over the past 15 years, FMFB has
has been ensured that the technology disbursed 2.245 million loans amounting
platform is robust, efficient and provides to PKR 67.7 billion to vulnerable and
24/7 cyber security. financial excluded populations. A total

26
 I would like to thank our customers across
number of 717,656 loans amounting to
the country for choosing FMFB. I also
PKR 18.5 billion were disbursed to women
want to thank our shareholders and the
entrepreneurs and home-based workers.
Board of Directors for their trust and
Client centricity and responsible financing
continued guidance. I would like to
has remained a focus area for FMFB, and
recognize the State Bank of Pakistan in
we continuously evaluate, re-evaluate
strengthening the microfinance sector
and adapt our products and services and
and setting forth an enabling
delivery mechanisms in the context of
environment for FMFB to grow as an
evolving market needs and environment.
institution. And finally, I want to recognize
all the employees of FMFB, who everyday
During the last three years, we have
assist and guide our customers towards
established a sound platform to fuel
financial inclusion. Together, our future is
growth. We have talented leadership and
exceedingly bright.
dedicated field force to develop and
execute our strategy. We have a strong
technology platform to offer a range of
innovative and technology-backed
products. We have a thorough
understanding of the evolving life-cycle
financial needs of our customers and we
have the passion to capitalize on the Amir Masood Khan
numerous opportunities the future has to President & CEO
offer.

I am convinced that in the future, we will

all see FMFB enhance its operations
across the length and breadth of
Pakistan, offering innovative, affordable
and customized products and services,
24/7 convenience, while responding to its
mission to positively impact the quality of
life of its customers.

27
28
 CORPORATE
INFORMATION
6

29
30
CORPORATE INFORMATION

BOARD OF DIRECTORS
Rayomond Kotwal Chairman
Sobia Chughtai Director
Jesse Culain Fripp Director
Maya Inayat Ismail Director
Maria Christine Largey Director
Abrar Ahmed Mir Director
Hironobu Takahashi Director
Aliya Yusuf Director
Amir Masood Khan President & CEO

BOARD COMMITTEES
Audit Committee
Maria Christine Largey Chairperson
Sobia Chughtai Member
Maya Inayat Ismail Member

Human Resource Committee

Rayomond Kotwal Chairperson
Maya Inayat Ismail Member
Aliya Yusuf Member

Risk Committee
Jesse Culain Fripp Chairperson
Sobia Chughtai Member
Abrar Ahmed Mir Member

Financial Inclusion and IT Committee

Abrar Ahmed Mir Chairperson
Jesse Culain Fripp Member
Maria Christine Largey Member

COMPANY SECRETARY
Yasir Masud

LEGAL ADVISOR
Khawaja & Kamal
Attorneys At Law

AUDITOR
A.F. Ferguson & Co.
Chartered Accountants
A member firm of the PwC network

HEAD OFFICE AND REGISTERED OFFICE

The First MicroFinanceBank Ltd.
16th & 17th Floors
Habib Bank Tower
Blue Area, Islamabad
Phone: (+92-51) 2824450
UAN: (051) 111-362-362
Fax: (+92-51) 2821817
Email: info@mfb.com.pk

ENTITY RATINGS (for year 2016)

Long Term: A+
Short Term: A-1
By JCR-VIS

31
32
 BOARD
OF DIRECTORS
7

33
 L to R (back row)

SOBIA CHUGHTAI
Director

ABRAR A. MIR
Director

RAYOMOND KOTWAL
Chairman

JESSE C. FRIPP
Director

ALIYA YUSUF
Director

L to R (front row)

AMIR MASOOD KHAN

President & CEO

MARIA C. LARGEY
Director

MAYA INAYAT ISMAIL

Director

HIRONOBU TAKAHASHI
Director

34
35
36
MANAGEMENT 8

37
 L to R (back row)

ADIL ALI ABBASI

Chief Financial Officer

SADIQ SHAHBAZ ALI

Head, Information Technology

SOHAIL MALIK
Head, Digital Financial Services
& Financial Inclusion

MUHAMMAD IMRAN RAO

Head, Banking Operations

ZEHRA KHALIKDINA
Head, Risk Management

YASIR MASUD
Company Secretary and General Counsel

MUHAMMAD SIDDIQUE AHMED

Head, Internal Audit

CHAUDHARY IHSAN MEHMOOD

Head, Compliance

L to R (front row)

ALI RAZA ANJUM

Chief Operating Officer

AMIR MASOOD KHAN

President & CEO

WAJID ALI
Head, Human Resources

38
39
40
 PRODUCTS
AND SERVICES
9

41
 FMFB offers a wide array of financial solutions catering to diverse banking needs of its
customers, through a network of 186 locations in major cities and towns.

LIABILITY PRODUCTS
FIRST CURRENT ACCOUNT & FIRST CURRENT PLUS ACCOUNT
FMFB offers a checking accounts for meeting customer’s daily
transactional needs. It provides both individuals and
businessmen instant access to a range of banking services,
through the convenience of FMFB’s network of branches and
digital channels.

FIRST GHARANA BACHAT

First Gharana Bachat is a saving account, which offers
attractive market-based returns with no minimum balance
requirement.

MICRO CASH MAXIMIZER

Micro Cash Maximizer Account is for customers having large
deposit funds. It offers easy and unlimited deposit and
withdrawal facilities during banking hours and attractive
market-based profit rate.

ASAAN ACCOUNT
FMFB offers a safe and easy to operate transactional deposit
account to its customers. The account can be opened with
minimal documentation and minimum amount of PKR 100.

TERM DEPOSIT
FMFB offers flexible and multiple investment options under its
Term Deposit schemes, which can be used by all income
groups.

UMEED BUNYADI BACHAT ACCOUNT

Umeed Bunyadi Bachat Account (UBBA) is a fun new savings
account that encourages young savers (up to 18 years) to
learn to save as well as to manage their money. UBBA offers
unique rewards to both children and parents.

42
ASSET PRODUCTS
ROSHANZAR
Roshanzar product serves the increased credit needs of clients,
who have transitioned from income generating activities to micro
enterprises. Roshanzar provides larger loan sizes up to PKR 500,000
on individual basis for agriculture, livestock or commercial
(trading, manufacturing and services) enterprises.

FIRST KAROBAR SARMAYA

First Karobar Sarmaya is a loan product up to PKR 150,000 for
individuals undertaking income generating/business activities
for a variety of purposes. It targets home-based entrepreneurs,
especially women, as well as small shops in market areas,
undertaking manufacturing, trading or service activities.

FIRST KISSAN SARMAYA

First Kissan Sarmaya provides short term financial facilities up to
PKR 150,000 to small subsistence-level farmers, cultivating crops
and vegetables on their own landholdings or under leased
(Mokada) or sharing (Harpo) systems. The product focuses on
providing financial facility to match cash flows patterns of the
farmer. Financing is available for purchase of agri inputs and
small farming implements/machinery.

FIRST MAVESHI SARMAYA

Livestock is an important asset and source of income in the
rural areas of Pakistan. First Maveshi Sarmaya is a short to
medium term loan up to PKR 150,000 offered to livestock
farmers, especially women, for productivity enhancement of
existing dairy animals, and animal purchase for rearing and
fattening as well as for dairy businesses.

LOW SALARY EMPLOYEE LOAN

The Low Salary Employee Loan is a personal loan product,
which is available for low salaried employees for a variety of
purposes. Individual loan is provided to permanent and
contractual employees of an organization.

STUDENT FINANCE
Student Finance is a specialized loan product developed to
meet the expenses of tertiary (Bachelors and Masters Degree)
and technical education. Financial facilities are available to
meet tuition and other educational institutional expenses on
semester or academic year basis. Loans can be repaid over
short term by the parent of the student, or over medium to long
term by both parent and student.

PRIVATE INSTITUTION FINANCE

This product facilitates educational institutions to develop
capacities, academic as well as logistics, for imparting quality
education and help empower students and their parents to
become financially inclusive. A package of services is offered
including financial facilities up to PKR 1,000,000.

43
 FIRST HOME LOAN
First Home Loan is a loan product for individuals looking to
improve their living conditions. Under the product applicant
can finance home improvements; e.g. reinforcement of house
structure, construction of a room, getting a paint job, plumbing
and sanitation improvement, electrical system or appliances
installation including UPS / Solar grid installation etc.

MICRO PENSIONER LOAN

The Micro Pensioner Loan is a personal loan product, which is
available for pensioners of Government organizations and
semi-government institutions for a variety of purposes. Whether
it is for commencing a new business, medical treatment,
expensive laboratory tests, or purchase of a motor cycle, Micro
Pensioner Loan provides financial facilities easily and quickly,
against future pension payment.

MICRO INSURANCE
CREDIT LIFE INSURANCE
Credit-linked life insurance product is offered to all loan
customers of the FMFB. Under this product, total outstanding
liability of a customer is paid by the insurance company to the
FMFB, in case of the natural/accidental death or permanent
disability of the client. Additionally, a small benefit is also given
to the bereaved family to cope with the emotional and
financial burden of losing a family member.

FIRST SEHAT TAHAFUZ

First Sehat Tahafuz is a voluntary health insurance product
offered to low income segments. This product is a cashless
micro insurance product, providing coverage for hospitalization
expenses, including ambulance charges under two plans:
- Policy Holder/Customer and spouse
- Family Plan – for a maximum of 6 members
Treatment can be availed at panel hospitals.

CROP AND LIVESTOCK INSURANCE

Crop and Livestock Insurance products are an offering from the
Govt. of Pakistan for all agriculture and livestock loan customers
of FMFB. Under crop insurance, total outstanding loan principal
of a client is paid by the insurance company to the FMFB, in
case a natural calamity (declared by the Govt. via Gazette) or
losses from crop diseases (as declared by the insurance
company and covered under the policy).
Under livestock insurance, the customer is protected against
death or disability of his large (cow, buffalo, bull) milching
animal. The customer can opt for insurance cover against his
total outstanding loan principal or the total value of the
mulching animal.

44
 DIGITAL ACCESS CHANNELS
FIRST TOUCH BANKING
A Mobile Banking application, which enables the customers to view their
account balance and mini statement, transfer funds, make utility bills
payment and Mobile top ups.

FIRST SMS BANKING

Customers who do not have a smart phone or access to the internet, can
view their account balance and mini statement by sending an SMS to
FMFB from their registered mobile numbers.

FIRST USSD BANKING

This offers customers with any mobile device to gain access to their bank
accounts using their registered mobile numbers.

FIRST CONTACT CENTER

Customers are able to get in touch with the Contact Center through
regular phone calls, IVR, WhatsApp, SMS, and email for queries and
complaints. This helps maintain a healthy customer-bank relationship.

FIRST IVR BANKING

FMFB understands that an effective IVR system ensures that maximum
customer queries can be catered to from outside the bank’s premises. With
IVR banking customers are able get answers to routine queries, cater to basic
banking needs and access information on the FMFB’s products and services
in local language marketing campaigns.

FIRST SOCIAL MEDIA

Keeping in view the digital mode of expansion, a strong presence on the
social media domain is equally important. FMFB has launched the bank’s
social media pages on all associated platforms.

FIRST LIVE CHAT

FMFB offers live chat feature on the bank’s official website and Facebook
page to cater to customer queries and complaints.

FIRST ATM
FMFB offers ATM services at 50+ locations. FMFB customers are able to
cash out their loan disbursements by using the ATM. The FMFB ATMs also
allow customers to make multiple different transactions like funds transfer,
IBFT, bill payments and more.

FIRST DEBIT CARD

FMFB has introduced its own debit card powered by PayPak by 1Link. This
card enables customers to take cash outs from all 1Link powered ATMs
across Pakistan and also make direct payments to merchants through
PayPak powered POS machines.

FIRST ASAAN BANKING

FMFB has developed an android tablet based, bio-metric powered
application that allows the bank to on-board customers directly in the
field without having to bring the customer to the branch for extensive
paper work.

45
46
 YEARS OF
MICROFINANCE 10

47
 15 YEARS OF MICROFINANCE
FMFB was established in 2002 as the first private expanded predominantly in Punjab and Sindh,
sector microfinance bank in the regulated sector. and currently operates through 186 locations in
It originates from the Credit and Saving Program the country, with a team of 2,068 dedicated
of the Aga Khan Rural Support Programme employees.
(AKRSP), and was formed with a purpose to
address the multi-dimensional causes of poverty Over its 15 years of microfinance banking, FMFB
and to improve the quality of life of its clients as has disbursed 2,245,728 loans amounting to PKR
per the philosophy of the Aga Khan Development 67.737 billion; 32% of these customers have been
Network (AKDN) – the strategic goal being women customers and 65% have been rural
reaching out to those who are currently not able customers. Total loans to farmers amount to PKR
to receive adequate financial services, throughout 22.486 billion, while loans to micro enterprises
the country, in rural as well as urban areas; target amount to PKR 21.280 billion. As at December 31,
audience being primarily the vulnerable groups, 2017, the FMFB had equity of PKR 4.5 billion, total
especially women. assets of PKR 25.9 billion and total deposits of PKR
20.93 billion. FMFB’s lending portfolio comprises
Inheriting a network of 16 locations in the 10.4% of the total microfinance sector .
Gilgit-Baltistan-Chitral (GBC) in 2002, the FMFB has

15 YEARS KEY MILESTONES Certificate of

Recognition in the
HBL acquired 50.5% shares silver category by
Microfinance
JCR-VIS Credit Rating improved Information
to A+ (short term) and A-1 National/ Exchange (MIX)
(medium to long term) Regional Awards
at 6th Citi-PPAF National Award at
Five national/ regional awards Awarded the Micro 5th Citi-PPAF Micro
at the 10th Citi-PPAF Micro “Seal of Pricing Entrepreneurship Entrepreneurship
Entrepreneurship Awards Transparency” Awards Awards

2016 2014 2012 2010

2017 2015 2013 2011

Three Regional Four National/ Regional National Award Achieved
Awards at the Awards at the 9th at 7th Citi-PPAF JCR-VIS Credit
11th Citi-PPAF Citi-PPAF Micro Micro Rating of A1
Micro Entrepreneurship Entrepreneurship (short term)
Entrepreneurship Awards Awards and A
Awards (medium to
Approved employer long term)
accreditation by ACCA

48
 15 YEARS TRAJECTORY

Outstanding Loans (PKR 000) Deposits (PKR 000) Outstanding Loans -Nos Deposit - Nos

25,000 800

700
20,000
600

Number of Clients ('000)

Amount (PKR Mn)

500
15,000

400

10,000
300

200
5,000
100

0 0
2002 2004 2006 2008 2010 2012 2014 2015 2016 2017

‘5-Diamond’
Status Award
Ranked 7th for high level
amongst the top disclosure on
100 MFIs of the Awarded the top the Inaugurated by
world in the 2008 “Financial Microfinance His Highness
MIX Global 100 Transparency Information the Aga Khan
Composite Award 2006” by Exchange and President
Rankings CGAP (MIX) of Pakistan

2008 2006 2004 2002

2009 2007 2005 2003

Collaboration with Ranked 14th amongst the First MFP in JCR VIS short
the Harvard top 100 MFIs of the world in Pakistan to term credit
University for social the 2007 MIX Global 100 become a rating of A1+
performance Composite Rankings member of the and A+
research global (medium to
Launched the first Microfinance long term
Social Rating branchless banking unique Network (MFN) rating)
carried out by partnership with the
M’Cril Pakistan Post for increasing
outreach in remote areas
49
50
2017: THE YEAR
IN FOCUS 11

51
 GEOGRAPHICAL OUTREACH
In 2017, FMFB’s network expanded to 186 locations encompassing 112 full service branches, 33
Permanent Booths (PBs) and 41 Pakistan Post sub-offices, in 74 districts in Pakistan. During the year, 13
Pakistan Post Sub-Offices were upgraded to status of Permanent Booth, while 15 new Pakistan Post
Sub-Offices were established. The geographical spread of FMFB emphasizes its strive to reach to the
unbanked population in remotest locations, irrespective of the clients’ ethnicity, gender and religious belief.

2017 2016
Province / Regions
Branch PB SO Total Branch PB SO Total

Punjab 48 26 29 103 44 17 25 86

Sindh 33 4 12 49 32 1 14 47

Gilgit-Baltistan 18 2 - 20 16 1 - 17

Khyber Pakhtunkhwa 9 1 - 10 6 1 - 7

Azad Jammu Kashmir 2 - - 2 1 - - 1

Balochistan 2 - - 2 1 - - 1

Grand Total 112 33 41 186 100 20 39 159

ASSET PORTFOLIO
FMFB offers a diverse range of customized and and education. During 2017, outstanding asset
purpose-linked short to medium term credit portfolio increased by 76%, while the active clients
facilities for economic activities like agriculture, grew to 304,563 (a growth of 38% from the
livestock, micro & small enterprises; and for other previous year).
life-cycle needs such as housing improvements

Active Borrowers (Excluding Write-off) Gross Loan Portfolio (Excluding Write-off)

PKR in Million
304,563
14,308
220,493
176,738
8,203
5,588

2015 2016 2017 2015 2016 2017

CUSTOMER SEGMENTS
Agriculture remains the mainstay of Pakistan’s total asset portfolio. The third main customer
economy. Supporting employment in the sector, segment is Fixed Income Customers - Pensioners
almost 51% of the total asset portfolio of FMFB and Low Salary Employees, who seek loans to
comprises agriculture and livestock loans. Micro start income generating activities to support their
enterprises, including upped end micro meager incomes. This segment comprises 23% of
enterprises (loans up to PKR 500,000), primarily the asset portfolio as of 2017.
services and trading sectors comprise 26% of the

52
 Outstanding Portfolio Composition - PKR in Million
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500

Agriculture Livestock Micro Enterprise Upper End Micro Fixed Income Housing
Enterprise (MPL+ LOSEL)

2015 2016 2017

LOAN SIZE
FMFB has been focusing on improving its portfolio 50,000; while the loan size of 26% was above PKR
of individual and higher ticket-size loans. In 2017, 100,000. The average disbursement loan size was
loan size of 60% of the total loans was above PKR PKR 52,839. The ratio of installment loans was 52%.

Average Loan Size Disbursed-PKR Loan Size-Wise Disbursement % - 2017

52,839
25%

42,560 53%

36,416 29% 84%

100%
12% 83%
19%

33% 27%
12%

UptoPkr 50k UptoPkr 100k Upto Pkr 150k UptoPkr 500k UptoPkr 1mln

Enterprise - Micro Agriculture - Micro Livestock - Micro

Roshanzar Fixed Income Housing - NSI
2015 2016 2017 Housing - SI Student Loan Private Institution
Finance

GENDER MIX
In terms of active borrowers, the ratio of strategic focus to target women clients; with at
male-female borrowers was 64:36, while in terms least 35% of its active clients being women.
of portfolio amount, it was 73:27. FMFB has a

Number of Customers

2015 2016 2017

Male Female

53
 RURAL AND URBAN CONCENTRATION
In terms of active borrowers, the ratio of rural-urban borrowers was 65:35, while in terms of portfolio
amount, it was 66:34.

FIRST HOME LOAN

In 2017, FMFB developed and launched a support low and middle income segments for
Housing Finance Product to support the incremental construction and progressive
multi-dimensional causes of poverty, supporting construction of new houses under micro-
the mission of FMFB, as well as a recurring client’s mortgages to support the National Financial
need identified through market feedback and Inclusion Strategy of the Government of Pakistan.
client surveys and the large market opportunity Moreover, this product specifically aims at women
identified through secondary research. First Home empowerment, by targeting women to access
Loan is the second specialized social loan loans for housing and hence women
product of FMFB, developed with an intent to not home-ownership and family well-being. During
only support structural and non-structural the year, 1,230 loans amounting to PKR 295
improvement of existing houses, but also to million were disbursed.

LIABILITY PORTFOLIO
FMFB-P offers a range of generic demand and Account was rebranded as “First Current
time deposit products i.e. Current Account, Account” and a new variant, “First Current
Saving Account (PLS and Micro cash Maximiser), Account Plus” was also launched, in view of the
Asaan Account, and Term Deposit Receipt (TDR). FMFB’s focus on CASA deposits. A specialized
Liability products of the FMFB are targeted at Liability team was also positioned to focus on
multiple market segments – individuals, institutional deposits.
transactory and organizations. The FMFB focuses
In 2017, there was a growth of 57% in number of
on both high net worth individuals and low
depositors and 71% in the value of deposits. The
income segments, women, professionals, private
average per client deposit was recorded at PKR
organizations and government departments, etc.
29,086. In 2017, the deposit book increased to PKR
In 2017, FMFB launched a Diamond Term Deposit 20.9 billion, with 718,107 depositors. FMFB opened
Scheme. The product facilitated in attracting 134,503 Asaan Accounts during the year.
more than PKR 2.5 billion for the Bank. The Current

Amount of Deposits - Rs in Million

718,107
20,887

458,210
12,237
9,661
296,248

2015 2016 2017

54
 PROFIT LOSS MICRO CASH ASAAN ACCOUNT TERM DEPOSIT
SHARING MAXIMIZER

MICRO INSURANCE
FMFB offers credit-linked life insurance, health Government’s Crop Loan Insurance Scheme
insurance, and crop and livestock insurance. (CLIS) and Livestock Insurance Scheme for
Borrowers (LISB).
Credit-linked Life Insurance is being offered free of
cost to all borrowers to cover risk of life and During 2017, credit-linked life insurance facility
permanent disability. Similarly, voluntary health was provided to 312,603 customers. Health
insurance programs are accessible to clients and insurance beneficiaries during the year were
their families to meet emergent or planned 24,720; while FMFB facilitated insurance cover to
in-hospital treatments. Crop insurance and 39,350 customers under the crop and livestock
livestock insurance plans are offered under the schemes.

DIGITAL CHANNELS
In 2017, FMFB embarked upon its digital 2017, FMFB was successful in designing ten
transformation journey with a vision to become a digital channels of access and
lead organization to offer 24/7 banking access communication for the customers – and
and convenience to its clients, and support in hence became the pioneer bank to offer
the implementation of the National Financial
this set of digital channels in the country.
Inclusion Strategy (NFIS) plan. With an aggressive
The FMFB has taken the approach to have
growth plan chalked out for 2017, a new
its in-house development team rather than
department was set up with expert human
relying on external organizations.
resources from the industry. By the end of

55
 BANKING OPERATIONS
During 2017, Banking Operations supported the level to support CBS integration. The role of the
migration of the Core Banking System. The Area Centralized Operations Unit was enhanced, with
Operations Managers became the front line different sub-units i.e. CPU Operations, CPU-NIFT &
team to train the end users and provided post ATM Operations providing back-office support to
migration support to business units. Post branches and other business units. It is also
migration, operational procedures were reviewed supervising bank wide record digital archival
and revised. activities. The Credit Administration Unit was
transferred to Banking Operations to handle
Twenty-seven Licenses of Branches and
disbursement authorities of two high-ticket size
Permanent Booth were obtained from the SBP
products. The ATM Operations Unit was
and sixteen correspondent accounts were
established and currently monitors 50+ ATMs;
opened during the year; with finalization of
and provides debit card issuance as well as
Currency Management arrangement with HBL.
back office support to branches.
During 2017, the organizational structure of
Banking Operations was revised at the branch

INFORMATION TECHNOLOGY
The year 2017 was focused on strengthening The FMFB’s core network Infrastructure, services
FMFB systems infrastructure i.e. strengthening and support were also upgraded with the
security and networks, redundancy at core links, provision of firewall, switches and redundant
replacing old hardware, provision of secondary data links with auto-failover at the Primary, DR
links, up-gradation of data links and renewing and Branch level. The branch availability for the
software and services. The FMFB’s core systems provision of services has also been improved.
infrastructure was upgraded to launch the ten
During 2017, FMFB launched an awareness
digital access channels.
campaign through various communication
The Core Banking System (CBS) was successfully channels to create awareness on the
implemented at 34 locations, thus enhancing it importance of Information Security at the bank
to a total of 205 locations. New products and level. Additionally, FMFB has engaged a third
services e.g. UBBA, Diamond TDR, Student party specialized information security firm to
Finance, Private Institution Finance, Biometric place better controls and strengthen the security
verification, Housing Finance and Staff Housing of its infrastructure.
Finance were also launched through the CBS.
The bank has developed in-house Level 1 and
Level 2 support services capacity for the CBS.

HUMAN CAPITAL DEVELOPMENTS

FMFB is asserting its productivity frontiers to new Succession Planning. The Individual Development
heights as it enters the second year of Plan (IDP) framework was developed. The
digitization. To achieve this, the Human Resource Organizational Structure was standardized and a
Strategy has been aligned to provide a complete new department – Digital and Financial Inclusion
framework for applying people management (DFI) was set up. Improvements were made to
practices that engage employees at the highest streamline regular business hiring. As part of the
of levels, leading to achievement of business digitization objective, a File Archiving Project
goals. FMFB’s commitment to human resource is (online functionality development to archive
reflected in the numerous initiatives it took during personal files of all ex-Employees) was initiated in
2017. 2017. By the year-end, 73% (1,306 employee files)
of the files were archived.
Performance based reward system was further
strengthened in 2017 to inculcate the culture of FMFB’s Learning and Development Centers serves
performance-based evaluations. Promotion as an emblem of excellence. In 2017, numerous
cycle along with re-designation exercise was learning programs were conducted - 33,818
executed on nation-wide basis. The Human training hours (which translates into 16.4 hours
Resource Department implemented initiatives per employee on average), to equip the
such as Performance Improvement Plans (PIP), employees with soft and technical skills to
Goal Management for Area Level staff and prepare them to serve the clients with enhanced

56
productivity. Emphasis was given on Leadership titles of certain positions were aligned with the
Development Programs for the middle and higher market.
management.
Along with other developments, FMFB aims to
To build and sustain an environment that fosters continuously review its compensation and benefit
a culture aligned with the future business strategy, packages to attract and retain the best talent. As
FMFB’s Vision, Mission and Core Values were part of the 2017 strategy, series of initiatives were
revisited. In 2018, cultural sessions drive will be implemented to improve this area i.e. introduction
steered across the FMFB with an aim to inculcate of Car Allowance, Staff Housing Loan, Field
a strong values based culture. Mobility - Motorcycle Allowance, enhancement in
health insurance benefits, and a special bonus
With growth in FMFB’s operations and evolving
on FMFB’s 15th Anniversary. To adequately
career progression needs, the existing eight
manage the compensation and benefit
generic pay grades from OG III to SEVP were
package, Human Resource Information System
revised. In 2017, New Pay Scales from MG 12 to
(HRIS) version 4 was implemented.
MG1 (MG12 being the entry level) were
introduced. All existing employees were mapped Total employees by the year end were 2,068.
to new grades effective July 2017. Moreover, job

RISK MANAGEMENT
With FMFB’s focus in offering digital financial faced by the FMFB. Risk and Control
services, the Risk Management Framework was Self-Assessment exercise was initiated and Key
revamped during 2017 to address the emerging Risk Indicators Model was developed. RMD
risks, while continuously strengthening its reinitiated Business Continuity Management
processes to manage existing risk. Accordingly in (BCM) drills to assess preparedness at the
2017, risk policies and procedures were revised. business units as well of the core banking system;
Additionally, a new domain of Information and also increased awareness about BCM
Security was positioned under the Risk through Learning Days and on-site guidance.
Management Department (RMD), thus
enhancing the role of the department to cover To support growth in business, changes were
Credit, Operational (including Fraud Risk made to the authority limits of the Credit
Management and Business Continuity), Market Approving Committees at each level. Static
and Information Security Risk. scorecard was developed through external
vendor, which is being implemented.
During 2017, initiatives were taken to strengthen
Operational Risk measures across the FMFB. Robust liquidity risk management framework is
Operational Risk Reviews were initiated at being put in place to support future growth.
business unit level with focus on highlighting Stress testing on quarterly basis has already
control lapses pertaining to major risks being been initiated in this regard.

COMPLIANCE FRAMEWORK
During 2017, the Compliance Department monitoring of branches was enhanced followed
dynamically pursued Board’s directions to ensure by capacity based visits to more than 110
effective compliance relating to SBP Prudential branches. The Department was also expeditious
Regulations, relevant provisions of existing laws in providing continuous guidance, education
and regulations, guidelines for and support to Digital Financial Inclusion (DFI) to
Know-Your-Customer (KYC), Anti-money implement the new initiatives in line with
Laundering laws (AML) and regulations, timely regulatory framework. During the year, FATCA &
submission of accurate data/returns to regulator CRS policy along with detail procedures were
and other agencies, and monitoring and developed and implemented.
reporting of suspicious transactions. Compliance

INTERNAL AUDIT
The Internal Audit is an independent and internal audits of the branch network,
objective assurance and advisory function management departments, IS audits,
designed to add value to the overall control fraud/special investigations etc. Internal Audit
environment of the FMFB. It assists the institution also focuses on raising awareness of risks and
in accomplishing its objectives by bringing a controls, providing advice to management in
systematic and disciplined approach to evaluate developing control solutions and monitoring the
and improve the efficiency and effectiveness of implementation of management’s corrective
the control processes through conducting actions to mitigate risks and strengthen controls.

57
58
FINANCIAL
REVIEW
12

59
 NET MARK-UP / INTEREST INCOME Amount
in Million

3,500
Net interest income, representing the yields on earning assets
3,000
reduced by the cost of funded liabilities increased by 51% over
last year. The overall increase in interest revenues was 50%, which 2,500
was accompanied by 47% increase in interest expense, as
2,000
compared to last year. Service charge income from loan
portfolio increased by 60% as compared to last year. Interest 1,500
income on Investments and Balances with banks merely
1,000
increased by 1% as compared to last year due to the high yield
long term investments maturing towards the end of 2016 and in 500

2017, leading to full absorption of substantial policy rate decline -

during the past five years. However, the impact of a negative 2014 2015 2016 2017
price variance was almost entirely offset by a positive volume Net Mark-up/Inrest Income
variance during full year 2017.
Amount

NON MARK-UP /
in Million

400 15%

NON-INTEREST INCOME 300

10%
Non-interest income comprises of mainly Fee Income from 200
disbursement processing, which experienced an increase of
5%
87% over previous year as a result of high growth of loan 100
portfolio. Commission and other income increased by 2%
over last year. This led to an increase of aggregate - 0%
2014 2015 2016 2017
non-interest income by 77% over last year.
Net Mark-up/Inrest Income
Non Mark-up/Inrest Income
Non markup income to net markup income

OPERATING EXPENSES Amount

in Million

2,500 90%
Operating expenses increased by 32% over previous year.
During 2017, FMFB opened 25 new branches and permanent 80%
booths which remained operative during part of the year while 2,000 70%
11 such locations opened in previous year remained fully
60%
operative during the year. This geographic expansion along
1,500
with extensive investments in digital financial sphere collectively 50%
increased administrative expenses by 22%. During the year,
40%
along with aggressive business growth and related field teams 1,000
strengthening, FMFB introduced multiple initiatives in line with its 30%

strategy to be the “employer of choice”; this included 20%

500
deepening of grade structure and introducing salary bands,
10%
market alignment of compensation based on comprehensive
market salary survey, introduction of incentives, allowances and - 0%

benefits for better employee satisfaction. This led to an increase 2014 2015 2016 2017

of Salaries and Benefits by 40% over previous year. Admin Expenses Salary Expenses
Cost to Income

PROFIT Amount
in Million

Operating profit i.e. profit before provisions and taxation for 2017 1,200
increased by 118% over last year as revenues significantly
1,000
increased supported by massive asset growth, while investing
heavily in strategic expansion of the operation base and
800
digitization. Net interest income increased by 51% while
Non-Interest income increased by 77% as compared to last year. 600
Operating expenses witnessed an increase of 32% with increase
in administrative expenses being 22% and staff costs increase 400
being 40%. With marked determination, FMFB was able to
surpass a great milestone of PKR One Billion profit before tax for 200

the year 2017, a two fold increase in comparison to last year.

-
Profit after tax for the year amounted to PKR 686 million,
2014 2015 2016 2017
registering an increase of 117% over last year.
Operating Profit Profit before tax
Profit after tax

60
EARNINGS PER SHARE (EPS) Amount
in Million

3.00
EPS reflects profit after taxation generated during the year for
2.00
each share. EPS of the FMFB for the year 2017 was recorded at
PKR 2.51 against PKR 1.44 for last year. This was achieved by 1.00
extensive asset growth during the year while managing 0.00
transformation. 2014 2015 2016 2017
Earning Per Share

LOAN PORTFOLIO Amount

in Million
15,000 1.80%
Gross Loan Portfolio increased by 76% over last year to close
10,000 1.20%
at an all-time high of PKR 14.55 billion with portfolio quality
being maintained higher than last year. PAR 30+ ratio 5,000 0.60%
decreased to 0.65% as of December 31 2017 with an - 0.00%
improvement of 6 basis points as compared to the last year 2014 2015 2016 2017
end. Gross Advances
Non-Performing Loans(NPL) %age

NON PERFORMING LOANS’ (NPL) Amount

in Million

COVERAGE
150 60%

100 40%
The NPL coverage ratio represents aggregate specific
50 20%
provisions against recognized NPLs as per the provision
criteria which requires increase in provision in line with the - 0%
increase risk of non-recovery. As at end 2017, nonperforming 2014 2015 2016 2017
loans amounted to PKR 95 million with a specific coverage
ratio of 23%, a decrease of 67 basis points representing that NPL NPL Coverage
the NPLs are in lower risk profile than previous year end.

DEPOSITS Amount
in Million

25,000 80%
During the year 2017, growth of 71% was achieved in
customer deposits. The increase was in all types of deposits 20,000
65%
with current deposits increasing by 46%, saving deposits 15,000
increasing by 45% and term deposits increased by 95%. The 10,000
50%
average deposit per depositor improved by 8.9% depicting
5,000
improvement in deposit concentration.
- 35%
2014 2015 2016 2017
Total Deposits Gross Advances ADR

RETURN ON AVERAGE
Amount
in Million
30,000 4.0%

ASSETS (ROA) 20,000

3.0%
2.0%
The ROA of the FMFB increased to 3.5% for the year 2017 by 10,000
1.0%
125 basis points over last year with an increase of 54% in Total - 0.0%
Assets in comparison to previous year. 2014 2015 2016 2017

Total Assets Return on average Assets

Amount

SHAREHOLDERS’ FUNDS in Million

5,000 30%

The aggregate shareholders’ funds registered an increase of 4,000

20%
18%, in absolute terms, over last year due to earnings for the 3,000
year 2017. Consequently, the net book value per share of the 2,000
10%
Bank increased to PKR 16.5 as on December 31, 2017 from 1,000
PKR 14.0 at end of last year. Return on Equity (ROE) increased - 0%
by 574 basis points closing at 16.5% for the year 2017. 2014 2015 2016 2017
Shareholders Fund Return on average Equity

61
62
 FMFB
SOCIAL GOALS
13

63
 FMFB’S 9 SOCIAL GOALS
To respond to its mission, FMFB has formulated a set of 9 Social Goals for 2016-2020, with annual key
performance indicators (KPIs) for a 5-year period. The Social Champion on the Board of FMFB monitors
the achievement of the pre-set annual targets against each social goal, and presents the status to the
Board on periodic basis.

1. The members of the Board of Directors are 6. Clients understand their financial rights and
committed to the social mission of FMFB; obligations when dealing with the FMFB;
2. Target specific client segments and offer client 7. Monitor employee satisfaction and maintain
centric products; employee turnover;
3. Improve access to social needs by offering 8. Employee Compensation levels are at least the
client centric financial solutions; national minimum wage;
4. Reduce barriers to financial inclusion for 9. FMFB’s clients have positive and sustainable
clients; improvement in quality of life (QOL) indicators.
5. Foster green environment friendly
opportunities;

The achievement status against Annual KPIs for 2017:

Annual Social Goals 2017 - Achievement Status

2 2 2 2 2
2
Achievement Status

1.5
1.5
1
1
0.5
0.5

0
BoD Target Client Access to Client Rights & Financial Employee Employee Client Quality
segments Social Need Obligations Inclusion Satisfaction Compensation of Life
Products

Achievement Status Score Key: Complete = 2, Partially Complete=1, Incomplete=0.

Note on Methodology: To obtain the Achievement Status score for each social goal, an equally weighted average
of the achievement status scores for annual targets of that social goal is calculated.

FINANCIAL CONSUMER PROTECTION FRAMEWORK

FMFB has a Financial Consumer Protection (FCP) that they were provided with Key Fact
Framework that aims to set minimum standards Statement (KFS), which is one of the primary
that clients should expect to receive when doing documents conveying complaint lodging
business with the FMFB. This enables it to deliver information to the customers. Moreover, 83%
financial services that are safe, transparent, fair, of clients find information provided is
offer good value for money, and are likely to sufficiently (or more) clear and detailed at
generate benefits and positive quality of life the time of filling the application form. 88%
changes for its clients. clients reported that information was
In 2017, FMFB implemented following financial provided on loan process and product
consumer protection initiatives: parameters;
1. Reviewed and updated policies and 5. Carried out an independent Mystery
procedures to ensure that financial Shopping Survey, which indicated only 2.6%
consumer protection practices are instances of customer product misfit;
mainstreamed into bank’s practices; 6. Infomercials on financial literacy were rolled
2. Designed and implemented an employee out;
training module on FCP; 7. Coordinated with partner insurance
3. Financing Agreements were revised to companies to incorporate regular reporting on
include consumer protection clauses; customer satisfaction/ complaints where using
4. Carried out an independent Client insurance products sold through FMFB;
Satisfaction Survey, which included check on 8. An independent Service Quality Unit was
FCP. Customers rated FMFB as 4.4 on a 5 created to ensure appropriate FCP service
point scale, with 90% of clients reporting that levels implementation;
FMFB is honest and committed with their 9. A new Complaint Management System
customers. 91% of the respondents reported (CMS) was developed and implemented.

64
FINANCIAL LITERACY
As part of its mission, FMFB aims to build financial Moreover, wherever possible, the infomercials
literacy of its clients, in order to equip them to have been sent to the clients through WhatsApp
make informed financial decisions that are in videos and are also available on the social
their own self-interest. However, given the literacy media and FMFB’s website.
level of the customer markets within which FMFB In addition to this initiative, a Key Fact Statement
operates, FMFB has designed its program wherein (KFS) has been developed for both credit and
information is disseminated in short digestible deposit products to provide customers with
forms. It also takes into account that this written information on the product’s terms and
information needs to be accessible to the conditions. The KFS is given to all clients on
customers, when they potentially have use for mandatory basis. A financial education booklet,
such information e.g. at the time of operating an namely, “Malliati Samaj Bhooj” is also available at
ATM, customers need to know what steps to the branches. Given the importance of financial
follow; and that the information can be reiterated literacy in FMFB, a dedicated human resource
and reinforced through different methods of has been assigned to further design the initiative.
communication to aid client learning. FMFB is also facilitating the implementation of the
Accordingly, FMFB has developed ten animated National Financial Literacy Program (NFLP) of the
infomercials, designed around a family’s financial SBP. During 2017, FMFB conducted 30 training
needs, in order to convey the messages in a form programs in seven districts of the country and
closer to the social fabric of the customers. These trained 1,103 participants. Resultantly, 764 deposit
infomercials are being displayed through LCDs accounts were opened by participants on the
installed in the FMFB branches (all branches to spot.
be equipped with LCDs by March 2018).

COMPLAINT MANAGEMENT
FMFB recognizes the right of its customers to complaint handling process to appropriately
lodge complaints and considers these as a enable its customers to lodge complaints.
constructive feedback about its products, During 2017, a total number of 139 customer
services and processes. FMFB has instilled a fair, complaints were received by FMFB. The average
transparent, easily accessible and efficient resolution time was 4 working days.

CUSTOMER SATISFACTION
FMFB places high importance on regular customers are highly satisfied with FMFB with
customer feedback to ensure that it is meeting mean satisfaction score of 8.8 out of 10. Almost
their needs. A Customer Satisfaction Survey was 84% of the respondents conveyed that the
carried out during 2017. Main finding was that products offered fully met their needs.

65
 Customer Satisfaction
Sig. High
OVERALL SATISFACTION

9.2
9.1 9.0
8.9
8.8 8.8
8.7
8.5 8.4

8.0

Overall GBC Punjab Sindh Male Female Rural Urban Livestock Roshanzar

Mean Satisfaction Score  10 Point Scale ... Extremely Satisfied (10) ... Extremely Dissatisfied (1)

Overall customers are highly satisfied with FMFB with mean satisfaction score of 8.8

QUALITY OF LIFE ASSESSMENT

FMFB conducted a quality of life survey in Q4-2017
to measure and understand the quality of life
impact on FMFBs clients using its loan products.
The quantitative survey, utilizing a test vs control
group methodology, was based on a sample of
1500 respondents (750 FMFB clients; 750 non-users
of MFBs).

PERCEPTION ABOUT IMPACT OF MFIs ON OVERALL QUALITY OF LIFE

Quality of Life indicators reveal that FMFB clients are more satisfitied with their economic status
and improvement in Quality of Life compare to non-users of Microfinance.

84% 88%
Current FMFB Clients of FMFB Clients
see positive change will continue using
in their Quality of Life Microfinance products

Reasons to stay Good Customer Service

with MFIs Effective product design

NEED - OFFER FIT

77% FMFB clients believe that loan product

meets their need

66
IMPACT OF FMFB

60% 62%
Positive Impact Positive Impact
on Family Life on Business

75% 66%
Better Purchasing Economic
Power Empowerment

36% 28%
Impact of Imporoved
Social Status Household Conditions

ABILITY TO SAVE FOR FUTURE

67% Saving at home 10% Savings at FMFB

47% Committee 3% Savings at any other MFI
5% Savings at commercial banks 1% Insurance/Takaful

NET PROMOTOR SCORE

54% OVERALL 52% MALE

66% GBC 59% FEMALE

51% RURAL

61% PUNJAB
57% URBAN
31% SINDH
Net Promoter Score, measures customer experience of FMFB brand and provides the best metric to
anchor our customer experience management program. Percentages given above ranges from 0 to
100%, that measures the willingness of customers to recommend FMFB's products or services to
others.

67
68
DIRECTORS’
REPORT
14

69
 The BoD presents the17th Annual Report of the Bank along with the Audited Financial Statements and
Auditor’s Report(s) thereon for the year ended 31st December 2017.

DISCUSSION ON RESULTS
Overall, 2017 has been yet another very successful transformation with an agile force of more than 2000
year for FMFB in which the Bank has witnessed employees.
substantial growth in all areas including deposit
The results of operation for the period under review
base, lending and profitability. The Bank has taken
are presented below:
first step towards digitization and structural

2017 2016
Number of borrowers served during the year 312,603 242,047
Gross Loan Portfolio (PKR in thousands) 14,554,966 8,273,926
Number of depositors 718,107 458,210
Value of deposits (PKR in thousands) 20,887,192 12,237,466
Share capital (PKR in thousands) 2,730,811 2,730,811
Equity (PKR in thousands) 4,505,549 3,830,504
Transfer to statutory reserve (PKR in thousands) 137,154 63,252
Contribution to depositors’ protection fund (PKR in thousands) 37,682 18,298
Earnings per share (PKR) 2.51 1.44
Profit before taxation (PKR in thousands) 1,007,252 488,544
Profit after taxation (PKR in thousands) 685,772 316,259

Economic indicators of the country have shown YoY). Agricultural and Livestock loans have a
positive trend during the last couple of years concentration share of 51% in the overall portfolio,
indicating an improving economy. However, during compared to 48% as at December 31, 2016. The
2017 certain economic indicators have witnessed total borrower served was 312,603 with a female to
slight downward trends due to the country’s male split of 36:64. Annual loan loss rate reduced
political instability as well increase in international significantly to 0.38% for 2017 as compared to
oil prices. Year on Year CPI inflation showed an 0.79% for 2016.
increasing trend and closed at 4.6% as at
December 2017 in comparison to 3.7% as at Furthermore, absolute total written off portfolio
December 2016.State Bank of Pakistan maintained during the year 2017 also reduced to PKR 44 million
the discount rate at 6.25% during 2017. Pakistan's in comparison to PKR 55 million during 2016.
foreign exchange reserves decreased during the
year by USD 2.9b from USD 23.1b in December 31, Profit after tax stood at PKR 686 million for year
2016 to USD 20.2b in December 31, 2017 marking ended 2017 an increase of 117% over 2016.
YoY decrease of 12%. Pakistani Rupee remained Effective management of lending portfolio assisted
mostly stable in first 11 months of the year 2017 at in maintaining loan loss provision expense at 0.6%
an average of PKR 105 against the USD 1. However, of portfolio for 2017 in comparison to 0.5% for last
during December 2017 the exchange rate rapidly year.
deteriorated and reached to PKR 108.6 against USD
1 as at December 31, 2017 whereas the exchange Total deposits at year end were PKR 20.9 billion, of
rate as at December 31, 2016 was PKR 104.8 which 59% were fixed maturity deposits. The
against USD 1. average cost of funds for the year 2017 was 5.89%.
The average Advance to Deposit ratio (ADR) was
At yearend 2017, the Bank’s total outstanding loan 70% for 2017. Investment portfolio mainly comprises
portfolio closed at PKR 14.6 billion with an increase of Pakistan Investment Bonds, market treasury bills
of PKR 6.3 billion over 2016 year end (76% increase and term deposit receipts.

70
The Bank remained well above the Minimum In 2017, FMFB successfully completed
Capital Requirement (MCR) of PKR 1 billion, implementation of “Flex Cube” as its new Core
with a surplus of PKR 2.35 billion as at year Banking System enabling it to have a
end. The Bank also remained well above the centralized, controlled and robust system
Capital Adequacy Ratio (CAR) requirement of environment.
15% throughout the year. The Bank’s CAR
stood at 26.5% as at December 31, 2017.

OUTLOOK
In the year 2018, the Bank is expanding its While 2017 was about laying the foundations for
business model to position itself as a digital Bank enabling a digital, customer focused and prudent
that delivers long-term growth and value creation organization, 2018 will be about building on this
in a rapidly changing market. In January 2018, foundation to expand the distribution structure,
FMFB celebrated its Annual Conference on the enhance customer on boarding and servicing
theme of ’FMFB 3.0 Improving Quality of Life capabilities.
Digitally!’.
To continually support growing business strategy
The year 2018 began with the big launch of 10 needs, numerous DFS initiatives and the Banks aim
new digital access offering services including ATM to digitize its processes, there will be continuous
services, Debit Cards, Mobile Application, SMS improvements in IT Infrastructure/Services with a
Banking and much more. As the year unfolds, focus on confidentiality, integrity and availability to
FMFB will draw on the new technological ensure reliable services to the clients in a highly
implementations to offer further alternate delivery secured environment. The Bank will continue to
channels for clients. The Bank will leverage on invest in its people, innovative solutions, technology
technology to digitalize work processes, improve platforms and assuring adequate controls.
efficiencies, revamping and redesigning many
backend processes to enable Straight through Compliance remains pivotal for the Bank at all
Processing and moving towards paperless fronts. FMFB is determined to inculcate and enrich
environment. a compliance culture at all levels while assuring
compliance to regulatory regimes and internal
In its endeavor to improve its client on boarding policies. Internal Audit, Risk management,
experience, FMFB is in the process of moving Compliance and Banking Operations departments
towards digitized Loan Origination System (LOS) to will be further strengthened. The Bank will continue
enable on boarding customers at their doorsteps to focus on hiring the best talent and develop
with on-spot data population and verification. LOS them for future career progression; the Bank is
will be supported by a dynamic score card based focusing on various initiatives to make FMFB a
on AI/BI, enabling swift credit decision making great place to work and enhance its image as an
and improved disbursement turnaround time. employer of choice.
Digital banking sphere offer unlimited
opportunities to grow, the Bank will enhance its
product suite and offer digital financial services
with a focus on client centricity and financial
inclusion. The Bank is further planning to stretch its
digital footprint in the year 2018, by achieving
more than 20 digital transactional, access and on
boarding channels.

71
 CREDIT RATING
JCR-VIS, a premium credit rating agency of the country, has maintained Bank’s rating of A+ (long term) and
A-One (short term) with stable outlook. These ratings represent low level expectation of credit risk, strong
capacity for timely repayment of financial commitments in the long run and high capacity of timely
repayment in the short term, respectively.

PATTERN OF SHAREHOLDING
The pattern of shareholding of the Bank as at 31 December 2017, as required under section 236 of the
Companies Ordinance, 1984 is as follows:

No. of shareholders Number of Shares Total # of Shares Held

5 1 100 50 shares
2 100 25,000,000 48,000,000 shares
1 25,000,000 30,000,000 30,000,000 shares
1 30,000,000 60,000,000 57,150,030 shares
1 60,000,000 140,000,000 137,931,035 shares
10 273,081,115 shares

Categories of Shareholders Number # of Shares Held Percentage

Individuals 1 10 0.00
Joint Stock Companies and Corporations 7 111,150,070 40.70
Financial Institutions 2 161,931,035 59.30
10 273,081,115 100.00

Shareholders holding above 10% of voting shares are:

Shareholder Voting Rights Number of Shares Held

Habib Bank Limited 50.51% 137,931,035 shares
Aga Khan Agency for Microfinance 20.93% 57,150,030 shares
Aga Khan Rural Support Programme 10.99% 30,000,000 shares
82.43% 225,081,065 shares

72
ACKNOWLEDGEMENT
The Board would like to thank our valued support with whom we enjoy a very cordial
customers for their continued patronage and relationship. The Board would also like to place its
support, State Bank of Pakistan, Securities and appreciation to the management team and all the
Exchange Commission of Pakistan, Pakistan staff of FMFB who bring commitment and
Microfinance Network and other regulatory enthusiasm to work each day for enriching their
authorities for their continuous guidance and communities and helping the valued customers.

Chairman Karachi: Thursday, 15th March 2018

73
74
AUDITOR’S REPORT
TO THE MEMBERS
15

75
 AUDITORS’ REPORT TO THE MEMBERS

We have audited the annexed balance sheet of The First Microfinance Bank Limited, (FMFB) as at
December 31, 2017 and the related profit and loss account, statement of comprehensive income,
cash flow statement and statement of changes in equity together with the notes forming part thereof,
for the year then ended and we state that we have obtained all the information and explanations
which, to the best of our knowledge and belief, were necessary for the purposes of our audit.

It is the responsibility of FMFB's management to establish and maintain a system of internal control,
and prepare and present the above said statements in conformity with the approved accounting
standards and the requirements of the Companies Ordinance, 1984, Microfinance Institutions
Ordinance, 2001 and the directives issued by the State Bank of Pakistan. Our responsibility is to
express an opinion on these statements based on our audit.

We conduct our audit in accordance with the auditing standards as applicable in Pakistan. These
standards require that we plan and perform the audit to obtain reasonable assurance about whether
the above said statements are free of any material misstatement. An audit includes examining on a
test basis, evidence supporting the amounts and disclosures in the above said statements. An audit
also includes assessing the accounting policies and significant estimates made by the
management, as well as, evaluating the overall presentation of the above said statements. We
believe that our audit provides a reasonable basis for our opinion and, after due verification, we
report that:

a) In our opinion, proper books of accounts have been kept by FMFB as required by the Companies
Ordinance, 1984;
b) in our opinion -
i) the balance sheet and profit and loss account together with the notes thereon have
been drawn up in conformity with the Companies Ordinance, 1984, the Microfinance
Institutions Ordinance, 2001 and the directives issued by the State Bank of Pakistan,
and are in agreement with the books of accounts and are further in accordance with
accounting policies consistently applied;
ii) the expenditure incurred during the year was for the purpose of the FMFB's business;
and
iii) the business conducted, investments made and the expenditure incurred during the
year were in accordance with the objects of FMFB;
c) in our opinion and to the best of our information and according to the explanations given to us,
the balance sheet, profit and loss account, statement of comprehensive income, cash flow
statement and statement of changes in equity together with the notes forming part thereof
conform with approved accounting standards as applicable in Pakistan, and,

PIA Building. 3rd Floor, 49 Blue Area, Fazl-ul-Haq Road, P.O. Box 3021, Islamabad-44000, Pakistan
Tel: +92 (51) 2273457-60 / 2604934-37; Fax: +92 (51) 2277924; <www.pwc.com/pk>

KARACHI LAHORE ISLAMABAD

76
 give the information required by the Companies Ordinance, 1984, the Microfinance
Institutions Ordinance, 2001 and the directives issued by the State Bank of Pakistan, in
the manner so required and respectively give a true and fair view of the state of the
FMFB’s affairs as at December 31, 2017 and of the profit, total comprehensive income,
its cash flows and changes in equity for the year then ended; and
d) in our opinion, Zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (xviii of 1980), was
deducted by the FMFB and deposited in the Central Zakat Fund established under section 7 of that Ordi-
nance.

The financial statements of FMFB for the year ended December 31, 2016 were audited by another auditor
who expressed an unmodified opinion on those statements on March 16, 2017.

Engagement partner: JehanZeb Amin

PIA Building. 3rd Floor, 49 Blue Area, Fazl-ul-Haq Road, P.O. Box 3021, Islamabad-44000, Pakistan
Tel: +92 (51) 2273457-60 / 2604934-37; Fax: +92 (51) 2277924; <www.pwc.com/pk>

KARACHI LAHORE ISLAMABAD

77
78
 FINANCIAL
STATEMENTS
16

79
 BALANCE SHEET
AS AT DECEMBER 31, 2017

2017 2016
ASSETS Note
-------------------- Rupees '000-------------------------

Cash and balances with SBP and NBP 7 1,204,886 840,523

Balances with other Banks/NBFIs/MFBs 8 2,638,550 2,111,977
Lending to Financial Institutions - -
Investments – net of provisions 9 5,934,139 4,627,558
Advances – net of provisions 10 14,394,668 8,183,228
Operating fixed assets 11 724,983 496,359
Other assets 12 1,001,745 584,933
Deferred tax asset 13 41,717 33,653
Total Assets 25,940,688 16,878,231

LIABILITIES
Deposits and other accounts 14 20,887,192 12,237,466
Borrowings 15 - 297,820
Subordinated debt - -
Other liabilities 16 547,947 512,441
Deferred tax liabilities - -
Total Liabilities 21,435,139 13,047,727

NET ASSETS 4,505,549 3,830,504

REPRESENTED BY:
Share capital 17 2,730,811 2,730,811
Share premium 620,690 620,690
Statutory & general reserves 326,723 189,569
Depositors' protection fund 92,696 55,014
Accumulated profit 735,345 231,578
4,506,265 3,827,662

(Deficit)/ surplus on revaluation of assets 18 (716) 1,248

Deferred grants 19 - 1,594
Total Capital 4,505,549 3,830,504

MEMORANDUM / OFF-BALANCE SHEET ITEMS 20 -

The annexed notes from 1 to 43 form an integral part of these financial statements.

80
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED DECEMBER 31, 2017
2017 2016
-------------------- Rupees '000-------------------------
Note

Markup/Return/Interest Earned 21 3,719,299 2,480,263

Markup/Return/Interest Expensed 22 (856,648) (580,886)
Net Markup/Interest Income 2,862,651 1,899,377
Provision against non - performing loans and advances (113,461) (31,624)
Recovery against written off advances 21,875 16,012
Provision for diminution in the value of investments - -
Bad debts written off directly - -
(91,586) (15,612)
Net Markup/ Interest Income after provisions 2,771,065 1,883,765
NON MARK-UP/ NON INTEREST INCOME
Fee, commission and brokerage income 23 288,312 158,770
Dividend income - -
Amortization of deferred grant 24 1,594 1,182
Other income 25 12,279 10,609
Total nonmarkup/non interest income 302,185 170,561
3,073,250 2,054,326
NON MARKUP/ NON INTEREST EXPENSES
Administrative expenses 26 (2,061,717) (1,559,937)
Grant related expenses (1,594) (1,182)
Other provisions/write offs - -
Other charges 27 (2,687) (4,663)
Total non-markup/non interest expenses (2,065,998) (1,565,782)
1,007,252 488,544
Extra ordinary/unusual items - -
PROFIT BEFORE TAXATION 1,007,252 488,544

Taxation - Current 28 (327,291) (152,295)

Taxation - Prior years (2,253) (5,957)
Taxation - Deferred 8,064 (14,033)
(321,480) (172,285)
Profit after taxation 685,772 316,259
Accumulated profit brought forward 242,981 8,272
Profit before appropriation 928,753 324,531
APPROPRIATIONS:
Transfer to:
Statutory reserve (137,154) (63,252)
Capital reserve - -
Contribution to Depositors' Protection Fund:
5% of Profit after tax (34,289) (15,813)
Interest on Investment (3,393) (2,485)
Revenue reserve - -
Dividend - -
(174,836) (81,550)
Accumulated profit carried forward 753,917 242,981

Earning per share (Rupee) 34 2.51 1.44

The annexed notes from 1 to 43 form an integral part of these financial statements.

81
 STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2017

2017 2016
Note------------ Rupees '000-------------

Profit after taxation 685,772 316,259

Other comprehensive income

Other comprehensive income not to be reclassified to profit

or loss account in subsequent periods :

Actuarial loss on defined benefit obligation 29.4 (10,242) (6,104)

Related tax impact 3,073 1,892
(7,169) (4,212)

Comprehensive income transferred to equity 678,603 312,047

Components of comprehensive income not reflected in equity

Deficit on revaluation of available for sale investments 9.4 (1,964) (24,767)

(1,964) (24,767)

The annexed notes from 1 to 43 form an integral part of these financial statements.

82
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2017

Share Statutory Depositors'

Share
premium & General Protection Accumulated Total
Capital
account Reserves Fund Profit

------------------------------------------------------- (Rupees '000) -------------------------------------------------------

Balance as at January 1, 2016 1,351,501 - 126,317 36,716 1,081 1,515,615

137,931,035 shares, having face value of Rs. 10

each, issued during the year at a premium of Rs.
4.5 each 1,379,310 620,690 - - - 2,000,000

Total Comprehensive Income

Profit for the year - - - - 316,259 316,259
Other comprehensive income/ (loss) - - - - (4,212) (4,212)
- - - - 312,047 312,047

Interest earned on investment of the Depositors'

protection fund - - - 2,485 (2,485) -
Contribution for the year - - 63,252 15,813 (79,065) -

Balance as at December 31, 2016 2,730,811 620,690 189,569 55,014 231,578 3,827,662

Total Comprehensive Income

Profit for the year - - - - 685,772 685,772
Other comprehensive income/ (loss) - - - - (7,169) (7,169)
- - - - 678,603 678,603
Interest earned on investment of the Depositors'
protection fund - - - 3,393 (3,393) -
Contribution for the year - - 137,154 34,289 (171,443) -

Balance as at December 31, 2017 2,730,811 620,690 326,723 92,696 735,345 4,506,265

The annexed notes from 1 to 43 from a integral part of these financial statements.

83
 CASH FLOW STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2017

Note 2017 2016

------------ Rupees '000-------------
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before taxation 1,007,252 488,544
Adjustments for non-cash charges
Depreciation of property and equipment 115,950 93,766
Amortization of intangible assets 20,686 10,934
Provision against non performing loans and advances 113,461 31,624
Gain on disposal of operating fixed assets (9,447) (2,490)
Amortization of deferred grant (1,594) (1,182)
Gain on sale of investment (3) (18)
Revaluation loss/ (income) on held for trading investments (33) 60
Amortization of discount on investments (175,865) (74,577)
Provision for gratuity 35,813 23,969
98,968 82,086
1,106,220 570,630
(Increase)/ decrease in operating assets
Advances (6,324,901) (2,689,240)
Accrued interest on term deposit receipts (163,612) (176,216)
Other Assets (excluding advance taxation) (384,991) (117,883)
(6,873,504) (2,983,339)
Increase/ (decrease) in operating liabilities
Deposits and other accounts 8,649,726 2,576,378
Borrowings from financial institutions (297,820) (347,756)
Other Liabilities (excluding gratuity) 31,281 178,287
8,383,187 2,406,909
Cash inflows/ (outflow) from operations 2,615,903 (5,800)
Gratuity paid (41,830) (32,187)
Grants received - net of returned - -
Income tax paid (356,186) (87,605)
Net cash inflow/ (outflow) from operating activities 2,217,887 (125,592)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in held to maturity securities (2,309,960) (1,312,907)
Investment in available for sale securities (3,324,558) (2,476,962)
Investment in held for trading securities - (94,313)
Proceeds from sale/ redemption of held to maturity securities 1,774,410 2,357,070
Proceeds from sale/ redemption of available for sale securities 5,155,910 1,350,000
Proceeds from sale/ redemption of held for trading securities 6,720 94,331
Investments in operating fixed assets (384,309) (218,676)
Sale proceeds of property and equipment disposed 28,497 3,074
Net cash outflow from investing activities 946,710 (298,383)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issuance of shares - 2,000,000
Net cash inflow from financing activities - 2,000,000
Net increase/ (decrease) in cash and cash equivalents 3,164,597 1,576,025
Cash and cash equivalents at the beginning of the year 3,593,775 2,017,750
Cash and cash equivalents at the end of the year 36 6,758,372 3,593,775

The annexed notes from 1 to 43 form an integral part of these financial statements.

84
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2017

1 STATUS AND NATURE OF BUSINESS

The First MicroFinanceBank Limited (FMFB) was incorporated in the Islamic Republic of Pakistan on
November 5, 2001 as a public limited company under the Companies Ordinance, 1984. The registered
office of FMFB is at 16-17 Floor Habib Bank Tower, Blue Area, Islamabad, Pakistan. The FMFB received
the certificate of commencement of business on February 14, 2002 and is licensed to operate nationwide.
FMFB's principal business is to provide microfinance services to the poor and under served segment of the
society as envisaged under the Microfinance Institutions Ordinance, 2001. FMFB has 186 (2016: 159)
business locations comprising of 145 (2016: 120) branches / Permanent Booths (PBs) and 41 (2016: 39)
Pakistan Post Office (PPO) sub offices in operation.

2 BASIS OF PRESENTATION

These financial statements have been presented in accordance with the Banking Supervision Department
(BSD) Circular Number 11 dated December 30, 2003 issued by the State Bank of Pakistan ("SBP").

3 STATEMENT OF COMPLIANCE

The Companies Act, 2017 was enacted on May 30, 2017 and SECP vide its circular 23 of 2017 dated
October 4, 2017 has clarified that the companies whose financial year, closes on or before December 31,
2017 shall prepare their financial statements in accordance with the provisions of the repealed Companies
Ordinance, 1984.

These financial statements have been prepared in accordance with approved accounting standards as
applicable in Pakistan. Approved accounting standards comprise of International Financial Reporting
Standards (IFRSs) issued by the International Accounting Standards Board (IASB) as are notified under
the Companies Ordinance, 1984, the requirements of the Companies Ordinance, 1984, the Micro Finance
Institutions Ordinance, 2001, and the directives issued by the Securities and Exchange Commission of
Pakistan (SECP) and SBP. Wherever, the requirements of the Companies Ordinance, 1984, the
Microfinance Institutions Ordinance, 2001, or directives issued by the SECP and the SBP differ with the
requirements of IFRS, the requirements of the Companies Ordinance, 1984, the Microfinance Institutions
Ordinance, 2001, or the requirements of the said directives prevail.

These financial statements also comply with the disclosure guidelines for financial reporting by
Microfinance Institutions which are voluntary norms recommended by the Consultative Group to Assist the
Poor (CGAP) and the members of the Small Enterprise Education and Promotion Network (SEEP).

The SBP vide BSD Circular No. 10, dated August 26, 2002 has deferred the applicability of International
Accounting Standard (IAS) 39, "Financial Instruments: Recognition and Measurement" and IAS 40,
"Investment Property" till further instructions. Accordingly, the requirements of these standards have not
been considered in the preparation of these financial statements. However, investments have been
measured in accordance with the Prudential Regulations (the Regulations) of the SBP and presented in
accordance with the requirements of SBP BSD Circular No. 11 dated December 30, 2003. Further, the
SECP vide its S.R.O No. 411 (I)/ 2008 dated April 28, 2008 has deferred the applicability of International
Financial Reporting Standard (IFRS) 7 "Financial Instruments: Disclosures", which is applicable for annual
periods beginning on or after July 01, 2009, till further orders.

85
 4 BASIS OF MEASUREMENT
The financial statements are prepared under the historical cost convention except:

• Investments classified as held-for-trading and available-for-sale are measured at fair value.

• Net obligations in respect of defined benefit schemes are carried at their present values.

4.1 Functional and presentation currency

These financial statements are presented in Pakistan Rupees (PKR), which is FMFB’s functional currency.
All financial information presented in PKR has been rounded off to the nearest thousand PKR, unless
otherwise stated.

5 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

5.1 Cash and cash equivalents

Cash and cash equivalents comprise of cash in hand, balances with treasury banks and balances with
other banks.

5.2 Borrowing from/ lending to financial institutions

The Bank enters into transactions of reverse repos and repos at contracted rates for a specified period of
time. These are recorded as under:

(a) Purchase under resale agreements (reverse repo)

Assets purchased under agreement to resell are not recognised in the financial statements as investments
and the amount extended to the counterparty is included in lending to financial institutions. The difference
between the purchase price and the contracted resale price is accrued on a time proportion basis over the
period of the contract and recorded as income.

(b) Sale under repurchase agreement (repo)

Assets sold subject to a repurchase agreement are retained in the financial statements as investments and
the liability to the counterparty is included in borrowings from financial institutions. The difference between
the sale and the contracted repurchase price is accrued on a time proportion basis over the period of the
contract and recorded as an expense.

5.3 Investment
All purchases and sales of investments are recognized using settlement date accounting. The settlement
date is the date on which investments are delivered to the FMFB. All investments are derecognized when
the right to receive economic benefits from the investments has expired or has been transferred and FMFB
has transferred substantially all the risks and rewards of ownership.

All investments will be made in accordance with the investment policy of FMFB and shall be classified as
under in accordance with the prudential regulations.

(a) Held for trading

These investments are held for a maximum period of 90 days and acquired principally for the purpose of
generating profit from short-term fluctuations in price or dealer's margin. These are marked to market
based on quoted market prices and the surplus/(deficit) arising from changes in the fair value of securities
classified as held for trading is taken to profit and loss account. Unquoted securities are valued at cost less
impairment, if any.

86
(b) Held to maturity
Investments with a fixed maturity, where management has both the intent and the ability to hold to maturity,
are classified as held to maturity. Subsequent to initial recognition at cost, these investments are measured
at amortized cost, less provision for impairment in value, if any. Amortized cost is calculated using the
effective interest rate method. Profit on held to maturity investments is recognized on a time proportion
basis taking into account the effective yield on the investments.

Premium or discount on acquisition of held to maturity investments are amortized through the profit and
loss account over the remaining period till maturity.

(c) Available-for-sale
These are investments which do not fall under the held for trading and held to maturity categories. Such
investments are initially recognized at cost and subsequently measured at market value. The surplus
arising on revaluation is kept in a separate account titled 'Surplus on Revaluation of assets' through
statement of comprehensive income, which is taken to profit and loss account when realized upon
disposal. Impairment in the value of these investments is provided by charging it to the profit and loss
account.

5.4 Advances
Advances are stated net of specific and general provisions. The outstanding principal of the advances,
payments against which are overdue for 30 days or more are classified as non-performing and divided into
following four categories; Other Assets Especially Mentioned (OAEM); Substandard; Doubtful and Loss.
The unrealized income/ profit/ markup/ service charges on non-performing advances is suspended and
credited to interest suspense account. Specific provision against non-performing advances is made in
accordance with the requirements of the Prudential Regulations issued by SBP.

(a) Other assets especially mentioned:

These are advances in arrears (payments/ instalments overdue) for 30 days or more but less than 60 days.

(b) Substandard:
These are advances in arrears (payments/ instalments overdue) for 60 days or more but less than 90 days.

(c) Doubtful:
These are advances in arrears (payments/ instalments overdue) for 90 days or more but less than 180
days.

(d) Loss:
These are advances in arrears (payments/ instalments overdue) for 180 days or more.

In accordance with the requirements of the Regulations, FMFB maintains a specific provision for potential
loan losses for all non-performing advances as follows:

(i) Other assets especially mentioned Nil

(ii) Substandard 25% of outstanding principal net of cash collateral and gold
collateral (ornaments and bullion) realizable without recourse to
a court of law.

87
 (iii) Doubtful 50% of outstanding principal net of cash collateral and gold
collateral (ornaments and bullion) realizable without recourse to
a court of law.
(iv) Loss 100% of outstanding principal net of cash collateral and gold
collateral (ornaments and bullion) realizable without recourse to
a court of law.

In addition to the above, a general provision is made equivalent to 1% (2016: 1%) of the net outstanding
balance (advances net of specific provisions and loans secured against gold or other cash collateral with
appropriate margin).

General and specific provisions are charged to the profit and loss account in the period in which they occur.

Non-performing advances are written off one month after the loan is classified as “Loss”. However, FMFB
continues its efforts for the recovery of the written off balances.

5.5 Operating fixed assets

(a) Capital work-in-progress

Capital work-in-progress is stated at cost less impairment losses, if any.

(b) Property and equipment

Property and equipment are stated at cost less accumulated depreciation and accumulated impairment
losses, if any. Cost includes expenditure that is directly attributable to the acquisition of the asset.

Depreciation is charged on the straight line method at rates specified in note 11.2 to the financial
statements, so as to write off the cost of assets over their estimated useful lives. Full month's depreciation
is charged in the month of addition, while no depreciation is charged in the month of deletion.

Subsequent costs are included in the assets carrying amount when it is probable that the future economic
benefits associated with the item will flow to FMFB and the cost of the item can be measured reliably. The
carrying amount of the replaced part is derecognized. All the other repair and maintenance expenditure is
recognized in profit and loss account as incurred.

Gain or losses on disposal of an item of property and equipment are determined by comparing the
proceeds from disposal with the carrying amounts of fixed asset. Gains are recognized within "other
income" while losses are recognized in administrative expenses in the profit and loss account.

(c) Intangible assets

An intangible asset is recognized if it is probable that the future economic benefits that are attributable to
the asset will flow to FMFB and that the cost of such asset can also be measured reliably. These are stated
at cost less accumulated amortization and impairment losses, if any.

Intangible assets comprise of computer Core Banking System and software and related applications.
Intangible assets are amortized over their estimated useful lives at the rates specified in note 11.3 to the
financial statements. Subsequent expenditure is capitalized only when it increases the future economic
benefit embodied in the specific asset to which it relates. All other expenditure is charged to the profit and
loss account as incurred.

88
5.6 Deposits
Deposits are initially recorded at the amount of proceeds received. Markup accrued on deposits, if any, is
recognized separately as part of other liabilities and is charged to the profit and loss account over the
deposit period.

5.7 Taxation
Income tax expense comprises of current and deferred tax. Income tax expense is recognized in the profit
or loss account except to the extent that it relates to items recognized directly in equity or below equity/
other comprehensive income in which case it is recognized in equity or below equity/ other comprehensive
income.

Management periodically evaluates positions taken in tax returns, with respect to situations in which
applicable tax regulation is subject to interpretation, and establishes provisions, where appropriate, on the
basis of amounts expected to be paid to the tax authorities. Instances where FMFB’s view differs from the
view taken by the income tax department at the assessment stage and where FMFB considers that its view
on items of material nature is in accordance with law, the amounts are shown as contingent liabilities.
(a) Current
Current tax is the tax due on the taxable income for the year, using tax rates enacted or substantively
enacted at the reporting date, taking into account tax credits, rebates and tax losses, if any, and any
adjustment to tax payable in respect of previous years.

(b) Prior years

The charge for prior years represents adjustments to the tax charge for prior years, arising from
assessments, changes in estimates, and retrospectively applied changes to law, made during the current
year.

(c) Deferred

Deferred tax is recognized using the balance sheet liability method on all temporary differences between
the amounts attributed to assets and liabilities for financial reporting purposes and the amounts used for
taxation purposes. Deferred tax is calculated at the tax rates that are expected to be applicable to the
temporary differences when they reverse, based on laws that have been enacted or substantively enacted
as at the reporting date.

A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be
available against which the asset can be utilized.

5.8 Staff retirement benefits

Salaries, wages and benefits are accrued in the period in which the associated services are rendered by
employees of FMFB. The main features of the schemes operated by FMFB for its employees are as
follows:

(a) Defined benefit plan

FMFB operates an approved defined benefit gratuity fund for all employees with a qualifying service period
of five years. Eligible employees are entitled to one month's basic salary for each completed year of service
upon retirement. Actuarial valuations are conducted by an independent actuary, annually using projected
unit credit method related details of which are given in note 29 to the financial statements. The obligation at
the balance sheet date is measured at the present value of the estimated future cash outflows. All
contributions are charged to profit or loss for the year.

89
 Actuarial gains and losses on staff retirement benefit plan are recognised immediately in other
comprehensive income and past service cost is recognised in profit and loss account when they occur.

(b) Defined contribution plan

FMFB operates a defined contribution provident fund scheme for its eligible employees. Contributions are
made by FMFB and its employees in accordance with rules of the fund.
5.9 Reserves
(a) Statutory reserve
FMFB is required to maintain a statutory reserve to which an appropriation equivalent to 20% of its annual
profit after tax is made till such time the reserve fund equals the paid-up capital of FMFB and, thereafter, an
appropriation of a sum not less than 5% of its annual profit after taxes in accordance with statutory
requirements under the Microfinance Institutions Ordinance, 2001.
(b) Depositors' protection fund
FMFB contributes 5% of its annual profit after tax along with related income on investment (net of related
tax) to the Depositors' Protection Fund, as required under the Microfinance Institutions Ordinance, 2001.

5.10 Provisions
A provision will be recognised when, and only when, FMFB will have a present obligation (legal or
constructive) as a result of a past event, it is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the
obligation.
5.11 Grants
Income from grants is recognized according to the related terms and conditions. Income related to grants
for the funding of projects and programs is recognized as the expenditure is incurred on projects and
programs.

The grants which involve funding for fixed assets are deferred and amortized to the profit and loss account
when the related fixed asset is depreciated/ amortized. Other grants are recognized as income in the year
of receipt.

5.12 Foreign currency transactions

The financial statements are presented in Pakistan Rupee, which is FMFB's functional currency.
Transactions in foreign currencies are translated into Pakistan Rupee at the exchange rate prevailing on
the date of the transaction.
5.13 Operating leases
Operating lease rentals are recorded in the profit and loss account on a time proportion basis over the term
of the lease arrangements.

5.14 Revenue recognition

(a) Markup/ interest income on advances
Markup/ interest income on advances is recognized on an accrual/ time proportion basis using the effective
interest method at FMFB's prevailing interest rates for the respective loan products. Markup/ interest
income on advances is collected with loan instalments along with additional service charge accrued due to
late payment, if any. Markup/ interest income/ additional service charge is accrued till the date when
advances become over due by 30 days. Markup/ interest income/additional service charge accrued on
advances over due by 30 days or more is reversed and credited to suspense account. Subsequently,
Markup/ interest income/ additional service charge recoverable on non-performing advances is recognized
on receipt basis in accordance with the requirements of the Prudential Regulations.

90
(b) Income from investments
Markup/ return on investments is a recognized using the effective interest rate method. Where debt
securities are purchased at a premium or discount, the related premium or discount is amortized through
the profit and loss account over the remaining period of maturity.

(c) Dividend income

Dividend income is recognized when FMFB’s right to receive the dividend is established.

(d) Fee, commission and brokerage income

Fee, commission and brokerage income is recognized when the related services are rendered.

(e) Income from lending to financial institutions

The income on reverse repo transactions arising from the difference between the sale and repurchase
price is recognized using the effective yield method.

(f) Income from inter bank deposits

Income from inter bank deposits in saving accounts is recognized in the profit and loss account as it
accrues using the effective interest method.

5.15 Financial instruments

Financial assets and liabilities are recognized when FMFB becomes a party to the contractual provisions of
the instrument. These are derecognized when FMFB ceases to be the party to the contractual provisions of
the instrument.

All financial assets and liabilities are initially measured at cost which is the fair value of the consideration
given and received, respectively. These financial assets and liabilities are subsequently measured at fair
value, amortized cost or historical cost, as the case may be.

(a) Financial assets

Financial assets are Cash and Balances with SBP and National Bank of Pakistan (NBP), Balances With
Other Banks/NBFIs/MFBs, lending to financial institutions, investments, advances and other receivables.
Advances are stated at their nominal value as reduced by appropriate provisions against non-performing
advances, while other financial assets excluding investments are stated at cost. Investments classified as
available for sale and held for trading are valued at year end prices and investments classified as held to
maturity are stated at amortized cost.

(b) Financial liabilities

Financial liabilities are classified according to the substance of the contractual arrangement entered into.
Financial liabilities include deposit and other accounts, borrowings and other liabilities which are stated at
their nominal value.
Any gain or loss on the recognition and de-recognition of the financial assets and liabilities is included in
the profit and loss account for the period in which it arises.
5.16 Off-setting

Financial assets and financial liabilities are only off-set and the net amount is reported in the financial
statements when there is a legally enforceable right to set off the recognized amount and FMFB intends
either to settle on a net basis or to realize the assets and to settle the liabilities simultaneously.

91
 5.17 Borrowing costs
Markup, interest and other charges on borrowings are charged to profit and loss account in the period in
which they are incurred except to the extent that relate to qualifying assets in which case if these are
directly attributable, then the amount is capitalized as a part of cost of qualifying assets.

5.18 Markup bearing borrowings

Mark-up bearing borrowings are recognized initially at cost being the fair value of consideration received,
less attributable transaction costs. Subsequent to initial recognition, markup bearing borrowings are stated
at original cost less subsequent repayments.
5.19 Standards, interpretations and amendments to approved accounting standards that are not yet
effective
(a) The following amendments and interpretations to published accounting standards were effective during the
year and have been adopted by FMFB:
Effective date (annual
periods beginning on or
after)
IFRS 12 Disclosure of interests in other entities (Amendments) January 1, 2017
IAS 7 Statement of cashflows (Amendments) January 1, 2017
IAS 12 Income taxes (Amendments) January 1, 2017
The management considers that adoption of above amendments and interpretations had no material
impact on the FMFB's financial statements other than in presentation/ disclosure.
(b) Following standard has been issued by the International Accounting Standards Board (IASB), which is yet
to be notified by the Securities and Exchange Commission of Pakistan (SECP) for the purpose of its
applicability in Pakistan:
Effective date (annual
periods beginning on or
after)
IFRS 1 First-Time Adoption of International Financial Reporting July 1, 2009
Standards (Amendments)
IFRS 14 Regulatory Deferral Accounts January 1, 2016
(c) Following standards and amendments to published accounting standards will be effective in future periods
and have not been early adopted by FMFB.
Effective date (annual
periods beginning on or
after)
IFRS 2 Share-based payment (Amendments) January 1, 2018
IFRS 4 Insurance Contracts January 1, 2018
IFRS 9 Financial Instruments July 1, 2018
IFRS 15 Revenue from Contracts with Customers July 1, 2018
IFRS 16 Leases January 1, 2019
IFRS 17 Insurance Contracts January 1, 2021
IAS 28 Investment in associates and joint ventures (Amendments) January 1, 2019
IAS 39 Financial Instruments: Recognition and Measurement
(Amendments) January 1, 2018
IAS 40 Investment Property (Amendments) January 1, 2018
IFRIC 22 Foreign Currency Transactions and Advance Consideration January 1, 2018
The management does not anticipate early adoption of above standards and amendments and is currently
assessing the impact of adopting these standards.

92
6 SIGNIFICANT ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with approved accounting standards as applicable in
Pakistan, requires management to make judgments/estimates and associated assumptions that affect the
application of policies and reported amounts of assets, liabilities, income and expenses. These
judgments/estimates and associated assumptions are based on historical experience and various other
factors that are believed to be reasonable under the circumstances, the result of which form the basis of
making the estimates about carrying value of assets and liabilities that are not readily apparent from other
sources.

Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on
an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates
are revised if the revision affects only that period, or in the period of the revision and future periods.
Information about significant areas of estimation, uncertainty and critical judgments in applying accounting
policies that have significant effect on the amounts recognized in the financial statements are as follows:

(a) Classification of investments (note 5.3)

(b) Provision against non - performing loans and advances (note 5.4)
(c) Valuation and impairment of available for sale securities (note 5.3)
(d) Valuation and useful life of operating fixed assets (note 5.5)
(e) Taxation (note 5.7)
(f) Present value of staff retirement benefits (note 5.8)
(g) Provisions (note 5.10)

93
 2017 2016
Note ------------ Rupees '000-------------
7 CASH AND BALANCES WITH SBP AND NBP
Cash in hand 313,263 177,901
Balance with State Bank of Pakistan 7.1 652,606 445,277
Balance with National Bank of Pakistan in
Current account - -
Deposit accounts 7.2 239,017 217,345

1,204,886 840,523

7.1 This balance maintained in current accounts with SBP to meet the Cash Reserve Requirement (CRR).

7.2 These carry markup at the rate of 3% (2016: 4%) per annum.

2017 2016
8 BALANCES WITH OTHER BANKS/NBFIS/MFBS Note ------------ Rupees '000-------------

In Pakistan
- on current accounts 99,566 75,783
- on deposit accounts 8.1, 8.2 1,538,984 736,194
- on term deposits accounts 8.3 1,000,000 1,300,000
2,638,550 2,111,977

8.1 These carry markup at rates ranging between 3.75% to 7% (2016: 3.75% to 8%) per annum.

8.2 These include balances for an amount of Rs. 468,323 thousand (2016: Rs. 337,109 thousand), held with
Habib Bank Limited, a related party.

8.3 These carry markup at rates ranging between 6.10% to 6.25% (2016: 6.45% to 6.75%) per annum.

Note 2017 2016

9 INVESTMENTS - NET OF PROVISIONS ------------ Rupees '000-------------

Held to Maturity
Federal Government securities
Pakistan Investment Bonds DPF 9.1 60,663 262,921
Market Treasury Bills HTM 9.2 90,938 283,444
151,601 546,365
Term Deposit Receipts (TDRs) 9.3 2,242,391 1,142,901
2,393,992 1,689,266
Available for Sale
Federal Government securities
Pakistan Investment Bonds - AFS 9.1 117,343 218,358
Market Treasury Bills - AFS 9.2 2,928,323 2,419,603
3,045,666 2,637,961
Held for Trading
Federal Government securities
Market Treasury Bills - HFT 9.2 495,197 299,083
495,197 299,083

(Deficit)/ surplus on revaluation of available for sale

investments 9.4 (716) 1,248
5,934,139 4,627,558

9.1 These represent bonds with maturity of three to ten year and carry markup at the rates ranging between
7.0% to 12.0% (2016: 7.0% to 12.0%) per annum, payable on a semi-annual basis, with maturities falling due
during 2018-2019. These also include a bond with three years maturity held for the purposes of Depositors'
Protection Fund with a carrying amount of Rs. 10,110 thousand (2016: Rs. 13,163 thousand) and carry
markup at the rate of 7.0% (2016: 7.0% and 9.6%) per annum respectively, with maturity falling due in 2019.

94
9.2 These represent securities with original maturity period of three months to one year and carry markup at the rates ranging between 5.91% to
7.04% (2016: 5.28% to 6.25%) per annum. These also include securities with original maturity period of six months to one year held for the
purposes of Depositors' Protection Fund with a cumulative carrying amount of Rs. 90,938 thousand (2016: Rs. 61,284 thousand) and carry
markup at the rates ranging between 5.96% to 6.04% (5.28% to 6.25%) per annum.

9.3 These represent TDRs with an original maturity of six months to one year carrying markup at rate ranging between 4.15% to 9.0% (2016: 6.45%
to 12.0%) per annum, payable on maturity.
2017 2016
9.4 Particulars of surplus on revaluation of available for sale investments: Note ------------ Rupees '000-------------

Opening balance 1,248 26,015

(loss) transferred to revaluation of assets account below equity (1,964) (24,767)
Closing balance 18 (716) 1,248

2017 2016
Number of Amount of Number of Amount of loans
loans loans loans outstanding
outstanding outstanding outstanding
Note (Number) (Rupees '000) (Number) (Rupees '000)
10 ADVANCES - NET OF PROVISIONS

Considered good 10.1 301,407 14,459,682 218,357 8,215,053

Considered doubtful 10.2 3,791 95,284 2,721 58,873
305,198 14,554,966 221,078 8,273,926
Less:
Specific provision 10.3 22,103 14,049
General provision
- Mandatory provision at the rate of 1% 10.3 137,866 75,187
- Additional provision 329 1,462
138,195 76,649
160,298 90,698
14,394,668 8,183,228

10.1 These include advances for an aggregate amount of Rs. 499,667 thousand (2016: Rs. 669,906 thousand) secured against gold collaterals and
cash deposits whereas the remaining advances except staff and key management personnel loans are secured by personal guarantee.
Advances includes 635 (2016: 585) staff loans, aggregating to Rs. 246,722 thousand (2016: Rs. 71,222 thousand), carrying markup at the rates
ranging between 3% to 5% per annum (2016: 3% to 5% per annum). These also include outstanding loans of the key management personnel
for an aggregate amount of Rs. 9,356 thousand (2016: Rs. 11,040 thousand) carrying markup at the rates ranging between 3% to 5% per
annum (2016: 3% to 5% per annum).

10.2 Particulars of non performing advances

Following is the detail of advances which have been placed under non-performing status in accordance with note 5.4.

Classification Amount Secured loan Amount to be Required Provision Provision

outstanding provided for provision required held
---------------------(Rupees '000)--------------------- percentage -------------(Rupees '000)------------
2017
Other Assets Especially Mentioned 43,880 4,378 39,502 0% - -
Sub-standard 18,745 1,730 17,015 25% 4,254 4,254
Doubtful 26,067 2,845 23,222 50% 11,611 11,611
Loss 6,592 354 6,238 100% 6,238 6,238
Total 95,284 9,307 85,977 22,103 22,103

2016
Other Assets Especially Mentioned 29,015 2,054 26,961 0% - -
Sub-standard 10,657 736 9,921 25% 2,480 2,480
Doubtful 14,163 824 13,339 50% 6,669 6,669
Loss 5,038 138 4,900 100% 4,900 4,900
Total 58,873 3,752 55,121 14,049 14,049

10.3 Particulars of provision against non performing advances

2017 2016
Specific General Total Specific General Total
Note ---------------------(Rupees '000)--------------------- ---------------------(Rupees '000)---------------------
Opening balance 14,049 76,649 90,698 31,785 82,346 114,131
Charge for the year 51,915 61,546 113,461 37,321 (5,697) 31,624
Less: Amounts written off 10.4 43,861 - 43,861 55,057 - 55,057
8,054 61,546 69,600 (17,736) (5,697) (23,433)
Closing balance 22,103 138,195 160,298 14,049 76,649 90,698

95
 2017 2016
Note ------------ Rupees '000-------------
10.4 Particulars of write offs

Against provisions 10.4.1 43,861 55,057

43,861 55,057

10.4.1 These represent non performing advances, overdue for 210 days or more, which are written-off in accordance with the policy of FMFB, as
explained in note 5.4 to the financial statements.

10.4.2 There is no requirement for the borrowers to save and deposit any amount as a condition for the loan disbursement.

10.5 Portfolio quality report

FMFB's main measure of loan delinquency is an aged portfolio-at-risk ratio. Loans are separated into classes depending on the number of days
they are over-due. For each class of loan, the aggregated outstanding principal balance of such loan is divided by the aggregated outstanding
principal balance of the gross loan portfolio before deducting allowance for non-performing advances. Loans are considered overdue if any
payment has fallen due and remained unpaid. Loan payments are applied first to additional markup/ interest due and then to instalment of
principal that is due but unpaid. The number of days of delay is based on the due date of the earliest loan instalment that has not been fully
paid.

2017 2017 2016 2016

Amount Portfolio Amount Portfolio
Loans (Rupees '000) at Risk % (Rupees '000) at Risk %

Current and less than 30 days late 14,459,682 - 8,215,053 -

30-59 days late 43,880 0.30% 29,015 0.35%
60-89 days late 18,745 0.13% 10,657 0.13%
90-179 days late 26,067 0.18% 14,163 0.17%
180 days or more late 6,592 0.05% 5,038 0.06%
14,554,966 0.66% 8,273,926 0.71%
In 2017, 12 loan products (2016: 9 loan products) have been disbursed with tenures ranging from 3 months to 5 years (2016: 3 months to 3
years), in accordance with the needs of the borrowers. During the year house loan facility has been introduced for permanent staff only having
maturity of up to 240 months (2016: Nil). Other staff loans includes general purpose and transport purpose have maturity up to 60 months
(2016: 60 months). Loan repayments are scheduled on a bullet or instalment basis whereby principal, markup/ interest and service charges are
recovered on an instalment basis and/ or on maturity as per the repayment schedule. Management estimates that the average term of its
outstanding loan portfolio is 15.09 months (2016: 12.50 months) based on the remaining weighted average tenure of loans outstanding as at
the balance sheet date.
Measures related to the classification of late payments are mentioned in note 5.4.

10.6 Current recovery ratio

Current recovery ratios are calculated on a monthly basis for management reporting purposes. The numerator of this ratio is cash received on
account of principal during the reporting period (including prepayments and late payments). The denominator is total payments of principal
amounts that fell due for the first time during the reporting period, as per the terms of the original loan contracts (regardless of any subsequent
loan renegotiations). Loan delinquency is measured using the Non Performing Loans (NPL) ratio.

Current recovery ratio in %

Period 2017 2016

1st Quarter 107% 110%

2nd Quarter 107% 108%
3rd Quarter 106% 111%
4th Quarter 108% 105%
107% 109%

The Annual Loss Rate (loans written off during the year divided by average loan portfolio outstanding) for the year is 0.38% (2016: 0.79%).

Note 2017 2016

10.7 Portfolio by segment ------------ Rupees '000-------------
Loan type
Agri input 2,226,640 1,112,801
Live stock 5,140,400 2,826,787
Micro-enterprise 3,816,901 2,068,972
Others 10.7.1 3,371,025 2,265,366
14,554,966 8,273,926

10.7.1 These include loans provided for general purposes.

96
 2017 2016
11 OPERATING FIXED ASSETS Note ------------ Rupees '000-------------

Capital work-in-progress 11.1 62,725 33,616

Property and equipment 11.2 471,083 358,099
Intangible assets 11.3 191,175 104,644
724,983 496,359

11.1 Capital work-in-progress

Advances to suppliers and contractors 62,725 33,616

62,725 33,616
11.1.1 Movement in the Capital work-in-progress is as follows:

Opening balance 33,616 155,798

Additions during the year 140,303 50,355
Transfers to:
- Property and equipment (29,370) (67,824)
- Intangible assets (81,824) (104,713)
(111,194) (172,537)
Closing balance 62,725 33,616

11.2 Property and equipment Net Book

Cost Accumulated Depreciation Value
Disposals/ Write Rate per Charge for the On Disposals/ At December
At January 01 Additions At December 31 At January 01 At December 31
offs annum year Write offs 31
--------------------------------------(Rupees '000)------------------------------------ % --------------------------------------------------(Rupees '000)--------------------------------------------------

2017
Free hold land 7,814 - - 7,814 - - - - 7,814
Lease hold improvements 269,723 36,992 (1,284) 305,431 14% 134,398 27,569 (1,242) 160,725 144,706
Furniture and fixtures 82,034 29,225 (1,244) 110,015 20% 48,116 12,233 (1,223) 59,126 50,889
Office equipment 141,913 58,699 (4,687) 195,925 25% 77,381 29,030 (4,602) 101,809 94,116
Computer equipment 182,247 82,317 (1,992) 262,572 20% - 33% 114,296 32,961 (1,992) 145,265 117,307
Vehicles 149,116 40,751 (46,801) 143,066 20% 100,557 14,157 (27,899) 86,815 56,251
832,847 247,984 (56,008) 1,024,823 474,748 115,950 (36,958) 553,740 471,083

2016
Free hold land 7,814 - - 7,814 - - - - - 7,814
Lease hold improvements 195,384 78,642 (4,303) 269,723 14% 119,731 18,549 (3,882) 134,398 135,325
Furniture and fixtures 64,046 19,951 (1,963) 82,034 20% 41,954 8,121 (1,959) 48,116 33,918
Office equipment 105,432 44,799 (8,318) 141,913 25% 65,649 19,963 (8,231) 77,381 64,532
Computer equipment 119,069 69,592 (6,414) 182,247 33% 92,173 28,465 (6,342) 114,296 67,951
Vehicles 131,876 20,577 (3,337) 149,116 20% 85,226 18,668 (3,337) 100,557 48,559
623,621 233,561 (24,335) 832,847 404,733 93,766 (23,751) 474,748 358,099

11.2.1 Property and equipment includes fully depreciated items, still in use, having a cost of Rs. 343,187 thousand (2016: Rs. 309,021 thousand).

11.2.2 During the year the FMFB has changed the estimate for useful life of computer servers from three years to five years. This change in accounting estimate has been accounted for prospectively in this financial statements as per the
requirements of International Accounting Standard 8 "Accounting Policies, Changes in Accounting Estimates and Errors". Had the estimate not been changed, the written down value of operating fixed assets and profit before tax
would have been lower by Rs. 9,310 thousand and profit after tax would be lower by Rs. 6,517 thousand.

97
98
11.2.3 Details of disposals of operating fixed assets

Accumulated
Particulars Cost Depreciation Book value Sale Proceeds Mode of Particulars of
------------------------(Rupees '000)------------------------------------ disposal buyers
Leasehold improvement-Gupis Branch 1,031 (1,031) - 3 Auction Quarban general store
Suzuki Cultus 1,017 (831) 186 544 As per policy Ch.Ihsan Mehmmood (Employee)
Suzuki Cultus 1,017 (831) 186 531 As per policy Ghulam Shah (Employee)
Suzuki Cultus 1,027 (839) 188 550 As per policy Muhammad Asad (Employee)
Suzuki Cultus 1,043 (678) 365 567 As per policy Aziz Majeed (Employee)
Suzuki Cultus 1,069 (657) 412 620 As per policy Kashif zafar (Employee)
Suzuki Cultus 1,044 (679) 365 617 As per policy Khuram Gull Khan (Employee)
Suzuki Cultus 1,069 (657) 412 557 As per policy Masood Malik (Employee)
Suzuki Cultus 1,069 (657) 412 640 As per policy Nooruddin Badruddin (Employee)
Suzuki Cultus 1,034 (638) 396 512 As per policy Rakhshanda (Employee)
Suzuki Cultus 1,069 (657) 412 592 As per policy Shah Makeen (Employee)
Suzuki Cultus 1,034 (638) 396 553 As per policy Usman Bhutta (Employee)
Suzuki Cultus 1,074 (662) 412 597 As per policy Usman Manzoor (Employee)
Suzuki Cultus 1,095 (528) 567 619 As per policy Ali Meher (Employee)
Suzuki Cultus 1,095 (528) 567 567 As per policy Muhammad Zaheer (Employee)
Suzuki Cultus 1,082 (504) 578 628 As per policy Nooruddin Dinal (Employee)
Suzuki Cultus 1,095 (528) 567 589 As per policy Raza Abbas (Employee)
Suzuki Cultus 1,052 (245) 807 807 As per policy Abdul Wakeel (Employee)
Suzuki Cultus 1,084 (361) 723 723 As per policy Naveed ul Islam (Employee)
Suzuki Cultus 1,084 (361) 723 723 As per policy Rizwan Maqsood (Employee)
Suzuki Cultus 1,079 (360) 719 719 As per policy Salman Mehmood (Employee)
Suzuki Cultus 1,053 (211) 842 842 As per policy Abdul Khaliq (Employee)
Suzuki Cultus 1,053 (211) 842 842 As per policy Ahmed Farhan (Employee)
Honda City 1,792 (1,099) 693 1,061 As per policy Nawroz Muhammad Ali (Employee)
Honda City 1,704 (596) 1,108 1,159 As per policy Sadiq Shahbaz (Employee)
Toyota Corolla GLI 1,745 (1,512) 233 1,068 As per policy Ali raza anjum (Employee)
Toyota Corolla GLI 1,809 (452) 1,357 1,357 As per policy Zehra Khalikdina (Employee)
Toyota Corolla GLI 1,809 (332) 1,477 1,478 As per policy Ayesha Baig (Employee)
Toyota Corolla XLI 1,544 (1,414) 130 957 As per policy Omer Janjua (Employee)
Toyota Corolla XLI 1,607 (1,445) 162 919 As per policy Adnan Zafar (Employee)
Toyota Corolla XLI 1,654 (689) 965 1,209 As per policy Nadeem Iqbal (Employee)
Toyota Corolla XLI 1,673 (697) 976 1,199 As per policy Wajahat Malik (Employee)
Honda Civic 2,123 (2,122) 1 206 As per policy Amir Masood (CEO)
Suzuki Cultus 1,084 (361) 723 686 As per policy Irum Sardar(Employee)
42,913 (24,011) 18,902 25,241

Other assets having original cost or

book value less than Rs. 1 million or
Rs. 250 thousand 13,095 (12,947) 148 3,256

2017 56,008 (36,958) 19,050 28,497

2016 24,335 (23,751) 584 3,074

 Cost Accumulated Amortization Value
Rate per Charge for the At December
At January 01 Additions Disposals At December 31 At January 01 On Disposals At December 31
annum year 31
--------------------------------------(Rupees '000)------------------------------------ % --------------------------------------------------(Rupees '000)--------------------------------------------------
11.3 Intangible assets

2017
Core banking system 104,713 81,824 - 186,537 10% 6,805 15,755 - 22,560 163,977
Computer softwares - note 11.3.1 28,117 25,393 - 53,510 20% 21,381 4,931 - 26,312 27,198
132,830 107,217 - 240,047 28,186 20,686 - 48,872 191,175

2016
Core banking system - 104,713 - 104,713 10% - 6,805 - 6,805 97,908
Computer softwares - note 11.3.1 25,533 2,584 - 28,117 20% 17,252 4,129 - 21,381 6,736
25,533 107,297 - 132,830 17,252 10,934 - 28,186 104,644

11.3.1 These include Rs. 7,880 thousand (2016: Rs 7,880 thousand) related to grant related assets.

99
 2017 2016
12 OTHER ASSETS Note ------------ Rupees '000-------------

Accrued markup on:

- loans and advances 969,984 601,436
- non performing loans and advances transferred to suspense account (173,574) (155,206)
- investments and bank accounts 14,572 26,880
810,982 473,110

Advances to employees 2,597 1,898

Deposits 4,133 2,301
Prepayments 12.1 81,148 55,848
Taxes - net of provision 29,280 2,639
Other receivables 12.2 70,657 46,680
Stationery stock 2,948 2,457
1,001,745 584,933

12.1 This includes prepayment of rent for an amount of Rs. 14,496 thousand (2016: Rs. 13,454 thousand) to Habib Bank Limited, a
related party.

12.2 These includes an amount due from related parties, Jubilee General/ Life Insurance of Rs. 2,617 thousand (2016: Rs. 10,591
thousand), Aga Khan Agency for Microfinance (AKAM) of Rs. 3,777 thousand (2016: Rs. 1,427 thousand), FMFB Afghanistan
Rs. 412 thousand (2016: Rs. 501 thousand), FMFB Tajikistan of Rs. 54 thousand (2016: Rs. 127 thousand) and Habib Bank
Limited Nil (2016: Rs. 3,648 thousand).

2017 2016
Note ------------ Rupees '000-------------
13 DEFERRED TAX ASSET

Deferred tax asset arising on account of deductible temporary differences on:

Operating fixed asset - 6,444

Provision against non-performing loans and advances 48,089 27,209
13.1 48,089 33,653
Deferred tax asset arising on account of taxable temporary differences on:

Operating fixed asset (6,372) -

41,717 33,653

2017 2017 2016 2016

14 DEPOSITS AND OTHER ACCOUNTS Note (Number) (Rupees '000) (Number) (Rupees '000)

Time liabilities
Fixed Deposits 11,798 12,281,891 8,376 6,307,133
Demand liabilities
Saving deposits 111,372 6,635,244 108,016 4,578,120
Current deposits 594,937 1,970,057 341,818 1,352,213
14.1 718,107 20,887,192 458,210 12,237,466

14.1 These include balances due to related parties of Rs. 1,849,428 thousand (2016: Rs. 907,605 thousand).

2017 2017 2016 2016

Note (Number) (Rupees '000) (Number) (Rupees '000)

14.2 Particulars of deposits by ownership

Individual depositors 683,126 9,975,593 442,361 7,485,776
Institutional depositors
a) Corporations/ Firms 34,488 7,680,570 15,556 2,275,036
b) Banks and financial institutions 493 3,231,029 293 2,476,654
718,107 20,887,192 458,210 12,237,466

100
 2017 2016
Note ------------ Rupees '000-------------
15 BORROWINGS
Borrowings under repurchase agreements - 297,820
16 OTHER LIABILITIES
Accrued markup on deposits 16.1 301,693 235,439
Bills payable 27,696 31,464
Branch adjustment account 1,374 11,682
Accrued liabilities 16.2 182,856 206,274
Withholding tax payable 11,459 11,886
Retention money 6,373 3,477
Payable to defined benefit gratuity fund 29.3 16,375 12,150
Payable to defined contribution provident fund 121 69
547,947 512,441

16.1 These include accrued markup on deposits due with related parties of Rs. 23,655 thousand (2016: Rs. 9,972
thousand).
16.2 These include balance amount due with Aga Khan Agency for Microfinance (AKAM) of Rs. 5,121 thousand
(2016: Rs. 11,898 thousand), a related party.
2017 2016
17 SHARE CAPITAL Note ------------ Rupees '000-------------
17.1 Authorized Share Capital
2017 2016
(Number) (Number)
350,000,000 350,000,000 Ordinary shares of Rs. 10 each 3,500,000 3,500,000
17.2 Issued, subscribed and paid-up capital
2017 2016
(Number) (Number)
Ordinary shares of Rs. 10 each
273,081,115 273,081,115 fully paid in cash 17.3 2,730,811 2,730,811
17.3 The pattern of holding in the issued share capital of FMFB is as follows:
Habib Bank Limited (HBL) 17.3.1 1,379,310 1,379,310
Aga Khan Agency for Microfinance (AKAM) 571,500 571,500
Aga Khan Rural Support Programme (AKRSP) 300,000 300,000
International Finance Corporation (IFC) 17.3.2 240,000 240,000
Japan International Cooperation Agency (JICA) 240,000 240,000
Others 1 1
2,730,811 2,730,811

17.3.1 During the year 2016, a total of 137,931,035 shares, having face value of Rs. 10 each, were issued against
cash consideration to HBL at a premium of Rs. 4.50 per share.

17.3.2 During the year IFC holding 24,000,000 (8.7%) shares of FMFB has exercised its put option vide notice to
AKAM and AKRSP dated December 15, 2017 under the term of Put & Call Option agreement dated June 14,
2002. The put option is subject to obtaining applicable regulatory approvals.

101
 2017 2016
Note ------------ Rupees '000-------------
18 (DEFICIT)/ SURPLUS ON REVALUATION OF ASSETS
AVAILABLE-FOR-SALE INVESTMENTS:
9.4 (716) 1,248
Government securities

2017 2016
------------ Rupees '000-------------
------------ Rupees '000-------------
SBP Total SBP Total
19 DEFERRED GRANTS Note 19.1
Opening balance as at January 1 1,594 1,594 2,776 2,776

Grants received during the year - - - -

Expenses incurred during the year - - - -
Amortization during the year 754 754 1,182 1,182
Adjustment during the year 840 840 - -
Income transferred to profit and loss account 24 1,594 1,594 1,182 1,182
Grant returned to the donor - -
Closing balance as at December 31 - - 1,594 1,594

Cumulative grants received till December 31 12,841 12,841

19.1 This represents grant under Financial Inclusion Program (FIP) designed to develop capacity of the Microfinance
Industry to enhance potential for growth and depth in outreach by improving human resource quality, improving
quality of services and increasing the services available to potential client. This grant is approved for purchasing,
installing and implementation of Oracle Financial and Human Resource Information System (HRIS).

20 MEMORANDUM / OFF - BALANCE SHEET ITEMS

20.1 Contingencies:

There are no known material contingencies as at December 31, 2017 (2016: Nil).

20.2 Commitments:
There are no known material commitments as at December 31, 2017 (2016: Nil).
2017 2016
21 MARKUP/RETURN/INTEREST EARNED Note ------------ Rupees '000-------------
Markup on advances 3,294,661 2,058,631
Income on investment in Government securities 207,692 186,481
Income from Term Deposit Receipts (TDRs) 161,559 176,216
Markup on deposit accounts with treasury and other banks 55,387 58,935
3,719,299 2,480,263

22 MARKUP/RETURN/INTEREST EXPENSED
Deposits and other accounts 855,885 576,464
Borrowings 22.1 763 4,422
856,648 580,886

22.1 This represents markup expense on repo transactions during the year.

102
 2017 2016
23 FEE, COMMISSION AND BROKERAGE INCOME Note ------------ Rupees '000-------------
Fee 282,739 151,566
Commission 5,573 7,204
288,312 158,770
24 AMORTIZATION OF DEFERRED GRANT
Deferred grant income recognized in respect of :
- Capital expenditure (amortization) 11.3.1 1,594 1,182
19 1,594 1,182
25 OTHER INCOME
Gain on disposal of operating fixed assets 9,447 2,490
Revaluation gain/ (loss) on held for trading investments 33 (60)
Gain on sale of investment 3 18
Others - income 2,796 8,161
12,279 10,609
26 ADMINISTRATIVE EXPENSES
Staff salaries and benefits 1,095,337 778,840
Contribution to defined contribution provident fund 41,040 32,741
Charge for defined benefit gratuity fund 29.4 35,813 23,969
Training and capacity building 21,544 32,620
Depreciation 11.2 115,950 93,766
Amortization of intangible assets 11.3 20,686 10,934
Travel and transportation 91,091 84,219
Rent, rates and taxes 141,239 92,983
Utilities 67,981 54,194
Printing, stationery and periodicals 37,072 36,764
Communications 52,330 38,161
Office security 85,142 61,909
Insurance 57,215 63,903
Repair and maintenance 25,765 30,702
Office supplies 33,376 23,831
Information technology supplies and software 63,584 34,805
Verification charges 13,849 15,582
Bank charges 21,250 14,912
Advertisement and business promotions 19,724 6,807
Legal and professional 12,077 21,723
Auditors' remuneration 26.1 3,737 2,377
Other expenses 7,509 5,377
2,063,311 1,561,119
Less: Grant related expense 24 (1,594) (1,182)
2,061,717 1,559,937
26.1 Auditors' remuneration
Audit fee 1,099 1,099
Fee for half yearly review 160 160
Group reporting, Special certifications and other assurance services 538 738
Tax services 1,320 -
Out of pocket expenses 620 381
3,737 2,377
27 OTHER CHARGES
Penalties imposed by the State Bank of Pakistan 2,242 1,392
Workers Welfare Fund (WWF) 445 3,271
2,687 4,663

103
 2017 2016
------------ Rupees '000-------------
28 TAXATION
For the year
Current 327,291 152,295
Deferred (8,064) 14,033
For the prior years
Current 2,253 5,957
Deferred - -
321,480 172,285
28.1 Reconciliation of tax expense and accounting profit
Accounting profit before tax 1,007,252 488,544

Tax at the applicable rate of 30% (2016: 31%) 302,176 151,449

Tax chargeable at lower rates 63 223
Unrealised gain/ (loss) (10) 17
Benefit of gross loss 15,916 14,609
Permanent differences 672 432
Prior year 2,253 5,957
Education cess 523 290
Others (113) (692)
321,480 172,285
29 DEFINED BENEFIT PLAN
29.1 General description
As mentioned in note 5.8, FMFB operates an approved defined benefit gratuity plan for all permanent employees with a
qualifying service period of five years. Eligible employees are entitled to one month's basic salary for each completed
year of service upon retirement. Actuarial valuations are conducted by an independent actuary, annually using
projected unit credit method related details of which are given in note 29 to the financial statements. The obligation at
the balance sheet date is measured at the present value of the estimated future cash outflows. All contributions are
charged to profit or loss for the year.
Actuarial gains and losses on staff retirement benefit plan are recognised immediately in other comprehensive income
and past service cost is recognised in profit and loss account when they occur.
29.2 Principal actuarial assumptions
The latest actuarial valuation of FMFB's defined benefit plan based on the Projected Unit Credit Method was carried
out as at December 31, 2017. Actuarial gains/ (losses) arising during the year are recognized in Other Comprehensive
Income (OCI) in accordance with IAS 19 (Revised 2011). The significant assumptions used in the valuation are as
follows:
- Discount rate of 9.5% (2016: 9.5%) per annum.
- Expected increase in salary levels of 8.5% (2016: 8.5%) per annum.
- Expected return on plan assets of 9.5% (2016: 9.5%) per annum.
29.3 Fair value of plan assets and present value of obligation under the scheme at the balance sheet date were as
follows:
2017 2016
Note ------------ Rupees '000-------------

Present value of defined benefit obligation 29.5 178,561 134,433

Fair value of plan assets 29.6 (162,186) (122,283)
29.4 16,375 12,150
29.4 Movement in the liability recognized in the balance sheet:
Opening net liability 12,150 14,263
Expense for the year 29.7 35,813 23,969
Contributions made to the fund (41,830) (32,187)
Actuarial loss 10,242 6,105
Liability at end of the year 16,375 12,150

104
 2017 2016
29.5 Movement in the present value of defined benefit obligation: Note ------------ Rupees '000-------------
Present value of defined benefit obligation at beginning of the year 134,433 102,238
Current service cost 36,759 24,152
Interest cost 12,119 10,018
Benefits paid (11,345) (4,107)
Actuarial loss 6,595 2,132
Present value of defined benefit obligation at end of the year 178,561 134,433
29.6 Movement in the fair value of plan assets:
Fair value of plan assets at beginning of the year 122,283 87,975
Interest income 13,065 10,201
Contributions made to the fund 41,830 32,187
Benefits paid (11,345) (4,107)
Actuarial loss (3,647) (3,973)
Fair value of plan assets at end of the year 29.9 162,186 122,283
29.7 Amount charged to defined benefit plan in the profit and loss account:
Current service cost 36,759 24,152
Interest cost on obligation 12,119 10,018
Interest income on plan assets (13,065) (10,201)
26 35,813 23,969
29.8 Actual return on plan assets:
The actual return earned on plan assets 9,418 6,229
29.9 Plan assets consists of the following assets:
Bank balances 60,400 76,688
Investments 101,786 45,596
162,186 122,284
29.10 Sensitivity Analysis
Sensitivity analysis has been performed by varying one assumption keeping all other assumptions constant and
calculating the impact on the present value of the defined benefit obligation under the various employee benefit
scheme. The increase / (decrease) in the present value of defined benefit obligations (PVDBO) as a result of change in
each assumption is summarized below :
2017 2016
------------ Rupees '000-------------
Changes in PVDBO
Increase in discount rate by 1% (23,697) (17,501)
Decrease in discount rate by 1% 28,921 21,342
Increase in future increment in salary by 1% 29,866 21,696
Decrease in future increment in salary by 1% (24,801) (18,062)
Increase in Withdrawal Rate by 10% 113 406
Decrease in Withdrawal Rate by 10% (113) (369)
Increase in Mortality Rate by 10% (90) (70)
Decrease in Mortality Rate by 10% 90 70

29.11 Expected contribution to the plan

Based on actuarial advice, the management estimates that the charge in respect of defined benefit plan for the year
ending December 31, 2018 is Rs. 39,601 thousand.

105
 30 NUMBER OF EMPLOYEES 2017
Credit/ sales Banking/
Total
staff support staff
Permanent 1,465 562 2,027
Contractual 4 37 41
Total 1,469 599 2,068

2016
Credit/ sales Banking/ support
Total
staff staff
Permanent 1,259 247 1,506
Contractual 19 16 35
Total 1,278 263 1,541

2017 2016

30.1 Average number of employees during the year 1,821 1,423

Un-audited Audited
31 EMPLOYEES PROVIDENT FUND TRUST 2017 2016
------------ Rupees '000-------------
Size of the Fund -Total Assets 403,290 334,128
Cost of investments made 397,870 321,617
Percentage of investments made 99% 96%
Fair value of investments 403,011 327,380
Breakup of Investments is as follows: 2017 2016
(Rupees '000) % (Rupees '000) %
Pakistan Investment Bonds 1,095 0% 1,108 0%
Mutual Funds 7,562 2% 7,164 2%
Term Deposit Receipts 245,056 61% 125,595 38%
Balance with Banks 149,298 37% 193,513 60%
403,011 327,380

31.1 The figures for 2017 are based on the un-audited financial statements (2016: audited financial statements) of the
Provident Fund. All the investments out of provident fund trust have been made in accordance with the provisions of
Section 227 of the Companies Ordinance, 1984 and the rules formulated for that purpose.

32 NUMBER OF BRANCHES /PERMANENT BOOTHS 2017 2016

At beginning of the year 120 109
Opened during the year 12 3
Upgraded during the year 13 8
At end of the year 145 120

33 REMUNERATION OF CHIEF EXECUTIVE, DIRECTORS AND EXECUTIVES

President/ Chief Executive Executives

2017 2016 2017 2016
------------ Rupees '000------------- ------------ Rupees '000-------------
Managerial remuneration 12,920 11,235 178,744 116,249
Contribution to provident fund 1,292 1,124 14,568 10,684
Rent and house maintenance 5,168 4,494 68,938 46,500
Utilities 1,292 1,124 17,235 11,624
Medical 1,292 393 16,987 4,075
Others 2,436 - 74,595 13,430
24,400 18,370 371,067 202,562
Numbers 1 1 157 103

106
33.1 Number of executives includes those who have worked partly or completely during the year and whose basic salary
exceeds Rs. 500,000 (2016: Rs. 500,000) per year.

33.2 The President/ Chief Executive Officer and certain other executives are also provided with free use of FMFB's owned
and maintained cars in accordance with their entitlement as per policy of FMFB.

33.3 No remuneration was paid to the directors of FMFB.

34 EARNING PER SHARE (RUPEE) 2017 2016

Profit after taxation - Rupees in '000' 685,772 316,259

Weighted average number of ordinary shares - Numbers in '000' 273,081 219,944
Earning per share - Rupee 2.51 1.44

34.1 There is no dilutive effect on the basic earning per share of FMFB.

35 RELATED PARTY TRANSACTIONS

Related parties of FMFB comprise of its major shareholders, associates (including entities having directors in common
with FMFB), directors, key management personnel which inlcude CEO and Head of Departments (HOD's) and staff
retirement funds.

Balances with related parties have been disclosed in the respective notes. Transaction with related parties, other than
those disclosed in the elsewhere in the financial statements are summarized as follows:
2017 2016
------------ Rupees '000-------------
Related parties by virtue of major shareholders

Markup expense on deposits received and borrowings 22,993 10,872

Vehicle and offices' rentals expense 25,396 22,482
Profit received on deposits with related parties 5,653 6,437
Bank charges 205 185

Related parties by virtue of common directorship

Markup expense on deposits received 21,486 5,863

Insurance expense 38,614 63,903
Meals and lodging expenses 1,487 404

Others
Charge for defined contribution gratuity fund 35,813 23,969
Contribution to defined contribution provident fund 41,040 32,741
Remuneration of key management personnel 110,547 71,749
Markup expense on deposits of key management personnel 49 19
Proceeds from sale of vehicles to key management personnel 8,749 -

FMFB has not extended any microfinance services to members of management, directors or parties related to them.

2017 2016
36 CASH AND CASH EQUIVALENTS Note ------------ Rupees '000-------------

Cash and Balances with SBP and NBP 7 1,204,886 840,523

Balances With Other Banks/NBFIs/MFBs 8 2,638,550 2,111,977
Market Treasury bills (having tenure of three months or less) 2,914,936 641,275
6,758,372 3,593,775

107
108
37 FINANCIAL INSTRUMENTS (BASED ON CONTRACTUAL OBLIGATION)

Interest/ mark-up bearing Non interest/ mark-up bearing Total

Effective
yield/ Up to one One to five Over five Up to one One to five
Sub total Sub total 2017
interest rate year years years year years

% -------------------------------------(Rupees '000)-------------------------------------
-------------------------------------(Rupees '000)-------------------------------------
December 31, 2017
Financial assets
Cash and Balances with SBP and NBP 3.0 239,017 - - 239,017 965,869 - 965,869 1,204,886

Balances With Other Banks/NBFIs/MFBs 3.75 - 7.0 2,538,984 - - 2,538,984 99,566 - 99,566 2,638,550

Investments 5.91 - 12.0 5,778,186 155,953 - 5,934,139 - - - 5,934,139

Advances 4.0 - 35.9 9,681,828 4,525,481 187,359 14,394,668 - - - 14,394,668

Other Assets - - - - 794,586 93,783 888,369 888,369

18,238,015 4,681,434 187,359 23,106,808 1,860,021 93,783 1,953,804 25,060,612

Financial liabilities
Deposits and other accounts 3.0 - 13.0 14,301,836 4,615,299 - 18,917,135 1,970,057 - 1,970,057 20,887,192

Borrowings - - - - - - - -

Other Liabilities - - - - 407,689 127,425 535,114 535,114

14,301,836 4,615,299 - 18,917,135 2,377,746 127,425 2,505,171 21,422,306

December 31, 2016

Financial assets
Cash and Balances with SBP and NBP 4.0 217,345 - - 217,345 623,178 - 623,178 840,523

Balances With Other Banks/NBFIs/MFBs 3.75 - 8.0 2,036,194 - - 2,036,194 75,783 - 75,783 2,111,977

Investments 5.28 - 12.0 4,448,336 179,222 - 4,627,558 - - - 4,627,558

Advances 4.0 - 38.4 6,844,462 1,338,766 - 8,183,228 - - - 8,183,228

Other Assets - - - - 521,688 2,301 523,989 523,989

13,546,337 1,517,988 - 15,064,325 1,220,649 2,301 1,222,950 16,287,275

Financial liabilities
Deposits and other accounts 3.0 - 13.0 10,171,738 713,515 - 10,885,253 1,352,213 - 1,352,213 12,237,466

Borrowings 6.25 297,820 - - 297,820 - - - 297,820

Other Liabilities - - - - 455,457 33,416 488,873 488,873

10,469,558 713,515 - 11,183,073 1,807,670 33,416 1,841,086 13,024,159

37.1 Concentration of credit risk:

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other
party to incur a financial loss. FMFB's credit risk is primarily attributable to its advances, lending to financial
institutions and balances at banks. The credit risk on liquid funds is limited because the counter parties are banks
with reasonably high credit ratings. FMFB has an effective loan disbursement and recovery monitoring system
which allows it to evaluate borrowers credit worthiness and identify potential problem loans. A provision for potential
loan losses is maintained as required by the Prudential Regulations issued by SBP. Maximum amount of financial
assets which are subject to credit risk amount to PKR 19,519,724 thousand (2016: PKR 11,234,427 thousand).

37.2 Liquidity risk:

Liquidity risk is the risk that FMFB will encounter difficulty in raising funds to meet its net funding requirements.
FMFB attempts to manage this risk by having adequate credit lines in place and maintaining sufficient liquidity at
branch level to meet anticipated funding requirements.

37.3 Interest rate risk:

Interest rate risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market
interest rate. FMFB's interest rate exposure stems mainly from investing activities. This risk is managed by regular
review of held-for-trading portfolio of government securities.

37.4 Fair value of financial instruments:

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The fair value measurement is based on the presumption
that the transaction to sell the asset or transfer the liability takes place either:

• In the principal market for the asset or liability; or

• In the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible by FMFB. The fair value of an asset or a liability
is measured using the assumptions that market participants would use when pricing the asset or liability, assuming
that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant's ability to generate
economic benefits by using the asset in its highest and best use or by selling it to another market participant that
would use the asset in its highest and best use.

FMFB uses valuation techniques that are appropriate in the circumstances and for which sufficient data are
available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of
unobservable inputs.

Fair value of available for sale and held for trading investments has been calculated based on market yields
obtained from Mutual Funds Association of Pakistan (MUFAP) at year end. These investments are categorized in
Level 2 category as per IFRS 13.

The carrying values of all financial assets and liabilities reflected in the financial statements approximate their fair
value except for Held to Maturity investments which are recorded at amortized cost.

37.5 Capital management

The paid-up capital of FMFB is PKR 2,730,811 thousand (2016: PKR 2,730,811 thousand) which meets minimum paid-
up capital (free of losses) requirement of PKR 1,000,000 thousand (2016: PKR 1,000,000 thousand) as specified in
the Microfinance Institutions Ordinance, 2001. The Bank has Capital Adequacy Ratio (CAR) of 26.5% (2016:
40.0%) of its risk-weighted assets which is in compliance with the requirements of Prudential Regulations to
maintain CAR of 15% of risk-weighted assets.

109
110
38 SCHEDULE OF MATURITY DISTRIBUTION OF MARKET RATE ASSETS AND LIABILITIES

Over one month up Over six months up

Total Up to one month Over one year
to six months to one year
December 31, 2017 (Rupees '000) (Rupees '000) (Rupees '000) (Rupees '000) (Rupees '000)
Assets
Interest/ markup earning
Cash and Balances with SBP and NBP 239,017 239,017 - - -
Balances With Other Banks/NBFIs/MFBs 2,538,984 1,538,984 1,000,000 - -
Investments 5,934,139 1,154,418 4,441,920 181,848 155,953
Advances 14,394,668 141,752 2,838,594 6,701,482 4,712,840

Non-Interest/ markup earning

Cash and Balances with SBP and NBP 965,869 965,869 - - -
Balances With Other Banks/NBFIs/MFBs 99,566 99,566 - - -
Other Assets 1,001,745 134,199 414,009 359,754 93,783
Deferred Tax 41,717 - - - 41,717
Operating Fixed Assets 724,983 - - - 724,983

25,940,688 4,273,805 8,694,523 7,243,084 5,729,276

Liabilities
Interest/ markup bearing
Large time deposits above Rs. 100,000 11,939,833 1,777,421 2,482,277 3,273,781 4,406,354
Deposits and other accounts 6,977,302 6,653,592 71,959 42,806 208,945
Borrowings - - - - -

Non-Interest/ markup bearing

Deposits and other accounts 1,970,057 1,970,057 - - -
Other Liabilities 547,947 299,838 63,737 56,947 127,425
21,435,139 10,700,908 2,617,973 3,373,534 4,742,724
Net assets 4,505,549 (6,427,103) 6,076,550 3,869,550 986,552

Represented by :
Share Capital 2,730,811
Share premium 620,690
Statutory & general reserves 326,723
Depositors' protection fund 92,696
Accumulated profit 735,345
Surplus on revaluation of assets (716)
Deferred grant -
4,505,549
 38 SCHEDULE OF MATURITY DISTRIBUTION OF MARKET RATE ASSETS AND LIABILITIES

Over one month Over six months

Total Up to one month Over one year
up to six months up to one year
December 31, 2016 (Rupees '000) (Rupees '000) (Rupees '000) (Rupees '000) (Rupees '000)
Assets
Interest/ markup earning
Cash and Balances with SBP and NBP 217,345 217,345 - - -
Balances With Other Banks/NBFIs/MFBs 2,036,194 736,194 1,300,000 - -
Investments 4,627,558 1,823,224 1,781,268 843,844 179,222
Advances 8,183,228 155,683 1,820,448 3,974,178 2,232,919

Non-Interest/ markup earning

Cash and Balances with SBP and NBP 623,178 623,178 - - -
Balances With Other Banks/NBFIs/MFBs 75,783 75,783 - - -
Other Assets 584,933 447,643 46,192 88,983 2,115
Deferred Tax 33,653 - - - 33,653
Operating Fixed Assets 496,359 - - - 496,359
16,878,231 4,079,050 4,947,908 4,907,005 2,944,268

Liabilities
Interest/ markup bearing
Large time deposits above Rs. 100,000 6,134,930 1,462,268 2,059,410 1,920,363 692,889
Deposits and other accounts 4,750,323 4,599,317 73,322 57,058 20,626
Borrowings 297,820 297,820 - - -

Non-Interest/ markup bearing

Deposits and other accounts 1,352,213 1,352,213 - - -
Other Liabilities 512,441 324,150 83,642 71,233 33,416
13,047,727 8,035,768 2,216,374 2,048,654 746,931
3,830,504 (3,956,718) 2,731,534 2,858,351 2,197,337
Net assets
Represented by :
Share Capital 2,730,811
Share premium 620,690
Statutory & General Reserves 189,569
Depositors protection fund 55,014
Accumulated profit 231,578
Surplus on revaluation of assets 1,248
Deferred grant 1,594
3,830,504

111
 2017 2016
(Rupees '000) (Rupees '000)
39 OPERATIONAL/NON-OPERATIONAL PROFIT

Profit before taxation comprises of:

Operational profit 1,005,658 487,362
Grant income 1,594 1,182
1,007,252 488,544

40 RECLASSIFICATION
The corresponding figures as at December 31, 2016 have been reclassified for more appropriate
presentation. These reclassifications have no effect on previously reported net income or
shareholders' equity. The effect on presentation of the balance sheet as at December 31, 2016 is
summarized below:

(Rupees '000)
From To
Investments – net of provisions Balances with other Banks/NBFIs/MFBs 1,300,000
Investments – net of provisions Other assets 4,145

Taxation - Current (WWF) Other charges (WWF) (3,271)

41 CORRESPONDING FIGURES

Corresponding figures have been re-arranged and re-classified, where necessary, for more
appropriate presentation.

42 GENERAL

Figures have been rounded off to the nearest thousand rupee unless otherwise stated.

43 DATE OF AUTHORIZATION FOR ISSUE

These financial statements were authorized for issue by the Board of Directors of the FMFB in their
meeting held on 15 March 2018.

112
 FMFB
PRESENCE
17

113
GILGIT BALTISTAN

SOST HUNZA

GAHKUCH

TAUS YASIN NAGAR

GUPIS CHATORKHAND SHIGAR

PHUNDER DUNYOR
GILGIT RONDO HUNDUR
MASHERBRUM
IMMIT DHAGHONI

ASTORE SKARDU KHAPLU

KHARMANG

BALOCHISTAN

QUETTA

DERA MURAD JAMALI

BALOCHISTAN
OUR FOOTPRINT

Head Office

Branch

Permanent Booth

Sub Office
KHYBER
PAKHTUNKHWA YARKHUN

MASTUJ
BOONI
SHOGHORE

GARAM
CHASHMA

SHANGRAME
CHITRAL

MUZAFFARABAD

MARDAN

ABBOTTABAD
NOWSHERA
HARIPUR

OUR FOOTPRINT

Head Office

Branch

Permanent Booth

Sub Office
PUNJAB

TAXILA

CHINARI ISLAMABAD
RAWALPINDI
KAMALABAD
KHARIAN
GUJRAT
PHALIA
MANDI FARID
TOWN JEHLUM SIALKOT
BAHAUDDIN NAROWAL
SARGODHA DENA WAZIRABAD
BHALWAL SHEIKHUPURA
SOHAWA DASKA
KHUSHAB
KAMONKEY GUJRANWALA
SILLANWALI NARANG MANDI
DARYA KHAN BUND ROAD MURIDKA
HAIFZABAD BATAPUR
RAZAABAD RAIWIND
CHINIOT FAISALABAD
GOJRA BAGHBANPURA RAVI ROAD
BHAKKAR NISHATABAD SAMMUNDARI PATOKI
JHANG ZARAR
PIR MAHAL TOBA OKARA SHAHEED
SAHIWAL DEEPALPUR
MANKIRA TEK SINGH SAHIWAL SO
JALALPUR
PAKPATAN
LAYYAH KAMALIA TIBBA SULTANPUR
KAROR SHORKOT CITY CHEECHA WATNI
LALESAN RENALA
FATEHPUR MAILSI PASROOR KHURD
VEHARI
DG KHAN BUREWALA ARIFWALA
TAUNSA SHARIF CHOWK A. HAKIM
SARWAR KHANEWAL BAHAWALNAGAR
MULTAN
DHARANWALA
KOTADDU MIAN CHANU DUNYAPUR
JAMPUR HAROONABAD
MINCHANABAD
SHUJABAD CHISHTIAN
KOT SULTAN KABIRWALA LODHRAN KAHROR
BAHAWALPUR PAKKA
HASILPUR
FAZILPUR MUZAFFARGARH AHMEDPUR-EAST
YAZMAN
FORT ABBAS
ALIPUR KHANPUR

UCH SHARIF
RAJANPUR
HEAD RAJKAN
KHANBELA LIAQATPUR

RAHIM YAR KHAN KOTSAMABA

ZAHIR PIR
FEROZA OUR FOOTPRINT
SADIQABAD

Head Office

Branch

Permanent Booth

Sub Office
SINDH

KHANDKOT
DAHARKI

GHOTKI
JACOBABAD
SHIKARPUR

RATODERO SUKKUR
MADEJI RANIPUR
LARKANA
WAGAN
KHAIRPUR MEHARABPUR
MEHAR

DADU
KANDIARO
SHAHPUR
NAUSHERO THARI MIRWAN
SAKRAND FEROZ
TANDO JAM HALA
NAWAB SHAH SHEDADPUR
HYDERABAD
MIRPURKHAS
UMERKOT
BADIN
NEW SANGHAR
KARACHI TANDO
DIGRI ALLAYAR KUNRI
BALDIA LANDHI
KORANGI MIRPURSAKRO
KARIMABAD TANDO MITHI
MUHAMMAD ISLAMKOT
GARDEN KHAN
CLIFTON DIPLO
MEHMOODABAD
MALIR AMINABAD

METROVILLE
GULSHAN-E-NOOR

OUR FOOTPRINT

Head Office

Branch

Permanent Booth

Sub Office